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Microeconomics Lecture 1 September 11th 2012.odt

3 Pages

Economics (Arts)
Course Code
ECON 208
Mayssun El- Attar Vilalta

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Economic Transactions: Shipments arrive, final goods, raw materials, parts of cars, oil, local firms manufacture their products Who or what provides the goods and service individuals desire? • Individuals Who coordinates the whole set of efforts? • No one Adam Smith • self interested people, allow them to interact, they create a social order, people are moved by self interest, not benelovence • he assumes people in the economy are self interested (motivated by their own desires/wants/needs) Efficient organization • sponatneous generated order works well? ◦ It works relatively well Efficiency: refers to organizing available resources to produce the goods and services that people most value when they most want them and by using the fewest possible resources to do so. Adam Smith describes this process as though it was guided by an invisible hand Characteristics of market economies • self interest guides individuals (they will buy and sell what is best for them) • Individuals respond to incentives ◦ they want to sell more if the price is high and less if the price is low • Prices and quantities are set in (relatively) free markets in which individuals trade voluntarily • Institutions created by the state protect private property and enforce contractual obligations Economy:Acomplex system that self organizes in an efficient way. How? Individuals moved by self interest Economics: is the study of the use of scarce resources to satisfy unlimited human wants Resources • Labour • Land • Capital Economists refer to resources as factors of production Outputs are goods (tangible) or services (intangibles) Production: is the act of making goods and services Consumption is the act of using them to satisfy wants Scarcity/Scarce resources: Humans have unlimited wants and needs in a world of limited resources Scarcity and Choice • resources can produce only a fraction of the goods and services desired by people • Scarcity implies the need for choice • every choice has an associated Opportunity-Cost Poverty: Concern of having insufficient services Opportunity-Cost: is defined as the benefit given up by not using resources in the best alternative way Example: University Degree Vs. Job • cost of university degree 30,000$ • 4 years salary 80,000$ • total would be a loss of 110,000$ (we do not count the cost of living because we assume it would be the same in both cases. If per chance the job or education were in a different city with a higher cost of living we would factor in the difference.) On this graph, optionAand B (choice) are maximizing all available resources where as option D is not. Option C (scarcity) would be
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