Lecture 2 Notes
Microeconomics focuses on the individual parts of the economy (households and firms).
A market economy is one that allocates resources through the decentralized decisions of firms and
- Firms and households get to make decisions without any interference (government, etc).
A command or centrally planned economy is one where all production and distribution decisions are
made by a central authority (government).
- Soviet Union
Canada is a mixed economy, with a little bit of both.
A resource is anything that can be used to produce something else.
- Land, labour, and capital (buildings/machinery).
Opportunity Cost is the cost of everything you have to give up to get something else.
- The cost of the best forgone alternative
Marginal changes are small adjustments to an existing plan of action.
- They motivate people to respond
- People make decisions by comparing marginal benefits to marginal costs
Adam Smith (late 1700’s) – the father of economics. Wrote “The Wealth of Nations”.
Gains from Trade
We specialize in tasks we do bes