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ECON 219 Lecture Notes - Opportunity Cost

Economics (Arts)
Course Code
ECON 219
Christopher Ragan

of 4
ECON 219 9/11/2012 8:41:00 PM
Tuesday, September 11th, 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-
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
services desired by people
o Scarcity implies the need for choice.
o Every choice has an associated cost opportunity cost
Important Questions
1. What is produced and how?
Resources allocation determines the quantities of various goods
that are produced
In terms of our previous illustration, what combination of civilian
and military goods will be chosen
Will the economy be inside the production possibilities boundary
inefficient used resources
2 . What is Consumed and By Whom?
What determines how economies distribute total output? Why do
some people get a lot while others get only a little?
Will the economy consume exactly what it produces?
Microeconomics is the study of the allocation of resources as it is
affected by the workings of the price system
3. Why are resources sometimes idle?
An economy is operating inside its production possibilities boundary
if some resources are idle
Under what circumstances are workers seeking jobs unable to find
Should governments worry about idle resources? Is there anything
government can do about it?
Is productive Capacity Growing?
Growth in productive capacity is shown by an outward shift of the
o 1) better technology
o 2) increase in resources
9/11/2012 8:41:00 PM