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ECON 227 (17)
Lecture

ECON 219.pdf

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Department
Economics (Arts)
Course
ECON 227
Professor
Kenneth Ragan
Semester
Fall

Description
Lecture 2SECTION I MARKET BASICSChapter 1 Economic Issues and ConceptsContentview the market economy as selforganizing in the sense that coordination and order emerge from a large number of decentralized decisionsthe importance of scarcity choice and opportunity cost and how all three concepts are illustrated by the production possibilities boundarythe circular flow of income and expenditureall actual economies are mixed economies having elements of free markets tradition and government intervention11 The complexity of the Modern EconomyThe SelfOrganizing EconomyWho or what provides the goods and services individuals desireEarly economists noticed that the interaction of selfinterested people creates a spontaneous social orderthe economy is self organizingSelfinterest not benevolence is the foundation of economic orderAdam Smith 17231790In the Weath of Nations Smith was the first to develop this insightfully It is not from the benevolence of the butcher the brewer or the baker that we expect our dinner but from their regard to their own interest We address ourselves not to their humanity but to their selflove and never talk to them of our own necessities but of their advantagesEfficient OrganizationLoosely speaking 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 soMain Characteristics of Market Economiesselfinterest guides individualsindividuals respond to incentivesprices and quantities are set in relatively free markets in which individuals trade voluntarilyinstitutions created by the state protect private property and enforce contractual obligations12Scarcity Choice and Opportunity CostEconomics is the study of the use of scarce resources to satisfy unlimited human wantsResourcesA societys resources are usually divided into land labour and capitalEconomists refer to resources as factors of productionOutputs are goods tangibles or services intangiblesScarcity and ChoiceResources can produce only a fraction of the goods and services desired by peopleScarcity implies the need for choiceFour Key Economic Problems1What Is Produced and Howresource allocation determines the quantities of various goods that are producedIn terms of our previous illustration what combination of civilian and military goods will be chosenWill the economy be inside the production possibilities boudaryinefficiently used resources2What Is Consumed and By Whomwhat determines how economies distribute total output Why do some people get a lot while others get only a littlewill the economy consume exactly what it producesMicroeconomics is the study of the allocation of resources as it is affected by the workings of the price system3Why Are Resources Sometimes Idlean economy is operating inside its production possibilities boudary if some resources are idle
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