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Econ 219 Lecture 2.docx

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McGill University
Economics (Arts)
ECON 227
Christopher Ragan

ECON 219 9/11/2012 8:41:00 PM th Tuesday, September 11 , 2012 Chapter 1 The Complexity of the Modern Economy  The self-organizing economy  Who or what provides the goods and services individuals desire?  Early economists noticed that the interaction of self-interested people creates a spontaneous social order – the economy is self- organizing.  Self-interest, not benevolence, is the foundation of economic order. Main Characteristics of Market Economies  Self-interest guides individuals  Individuals respond to incentives  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. Scarcity, Choice, and Opportunity Cost  Economics is the study of the use of scarce resources to satisfy unlimited human wants.  Resources o A society’s resources are usually divided into land, labor, and capital. o Economists refer to resources as factors of production o Out puts are goods (tangibles) or services (intangibles)  Scarcity and Choice o Resources can produce only a fraction of the goods and
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