Class Notes (834,991)
Canada (508,850)
Economics (1,614)
ECON 1B03 (520)
Lecture

Lecture Notes.docx

5 Pages
114 Views
Unlock Document

Department
Economics
Course
ECON 1B03
Professor
Hannah Holmes
Semester
Winter

Description
ECONOMICS NOTES CHAPTER 1: Basic Principles of Microeconomics Economics  the study of how society allocates its resources to satisfy people’s wants  resources are scarce, meaning they are usually limited  resources are what are used to produce something else (goods and services ie. labour, land, machinery)  there is a limit on how much production of goods and services can occur do the scarcity of resources Micro: focuses on individual parts of the economy- how households and firms interact Macro: focuses on the economy as a whole- how inflation, unemployment and economic growth affect economy Different Types of Economy Market Economy  allocates resources through the decentralized decisions of firms and households  households decide what to buy and who to work for  firms decide how much to produce and who to hire Command/ Centrally Planned Economy  all production and distribution decisions are made by a central authority (ie. government) Mixed Economy  a combination of both market and command economy Opportunity Costs  everything you have to give up in order to attain a certain something  the cost of the best foregone alternative  example: to attend McMaster it costs 25,000 a year; you could have spent that money on something else, such as a car o implicit costs o explicit costs Marginal Thinking  marginal changes are small, incremental adjustments to an existing plan of action  example: a firm will wonder “what will happen to the profit if we decide to produce one more good?”  people make decisions by comparing marginal benefits to marginal costs  when marginal benefits exceed marginal costs, a decision is proved worth it Adam Smith  observed that households and firms act as if they are guided by an “invisible hand”  consumers choose freely what they buy  producers choose freely what they produce and sell  the market settles on a product distribution and prices that are beneficial to all the individual members of an economic community  greed drives people towards beneficial behaviour  greed pushes people to maximize profits (by perhaps undercutting competitors with low prices and making smart investments)  students decide to pay an upfront cost of attending school because they believe it will eventually provide them with a higher income  effects take place dynamically and automatically Markets Move Towards Equilibrium Economic Equilibrium  when there is no incentive for any economic actors to change their behaviour  profits have been maximized and no changes will benefit the actor  markets usually reach equilibrium through changes in prices  prices guide decision makers to reach outcomes that maximize the welfare of an economic community Gains From Trade  in an market economy, people engage in trade with one another  we specialize in tasks we do best and trade with others for the things they can provide  we have gains from trade Efficiency and Equity  efficiency is when an economy`s resources are used efficiently when they are used to maximize the welfare of a society (economics decisions)  markets that are left to operate freely usually lead to efficiency  equity involves the fair distribution of resources (political decisions)  market failure occurs when the market fails to allocate resources efficiently  when failure occurs, the government can intervene to promote efficiency and equity Causes of Market Failure  an externality- the impact of one person or firm’s actions on the well-being of a bystander  market power- the ability of a single person or firm to unduly influence market prices  some goods simply aren’t suited for the market and do not succeed (ie. organ donations) Economists Roles
More Less

Related notes for ECON 1B03

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit