ECON 219 9/11/2012 8:41:00 PM
Tuesday, September 11 , 2012
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-
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.
o A society’s resources are usually divided into land, labor, and
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