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Economics – Lecture 2-6 Notes.docx

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Department
Economics
Course
ECON 1BB3
Professor
Bridget O' Shaughnessy
Semester
Winter

Description
Economics – January 8 , 2013 – Lecture 2 Chapter Two  Express ideas in economics: 1. English language 2. Algebra/equations 3. Diagram/graph  Translate between each different form of communication  Economics is a social science  Social = people  Science = use scientific method (observe -> theorize -> test theory)  Microeconomics: individual households and firms and how they interact  Macroeconomics: economy-wide phenomena such as interest rate, unemployment, money and growth  Efficiency vs equity: o Efficiency is the size of the pie o Equity is how the pie is divided  Positive vs Normative analysis: o Positive: the world ‘as it is’ o Normative: the world ‘as it should be’ (have to make a value judgment)  Why are the principles 6&7 different in the book compared to the lecture? o Mankiw makes normative statements: he values efficiency over equity  Model = simplification: o Diagram or equations o Assumptions o Variables o Ex. map of a city is useful because it is a simplification, it is smaller, it does not have every tree/stop sign o Have to understand how simplest model would work to understand how more difficult ones work  Classify variables: o Real variables vs. nominal variables (real variables measured in physical units, nominal variables measured in dollars) o Stock variables vs. flow variables (stock variable is a snapshot at a point in time, flow variable has some time element –units per minute, second, year, etc.) Example of a model: Circular Flow Diagram  Shows how dollars flow through the economy  Money flows from “firms” to “market for goods & services”  Money flows from “households” to “market for goods & services”  Goods and services flow from firms to households Economics – January 10 2013 – Lecture 3  PPF: the combinations of output that the economy can produce given the available factors of production and production technology  Autarky: no trade  Feasible: a combination that lies on the PPF or inside the PPF  Infeasible: a combination that lies above the PPF  Efficient: in order to get more of one good, you must give up some of the other good (points on the PPF)  You are better off if you have at least the same amount of one good and more of the other good Ex. There are two interior decorators that can paint and wallpaper. They have 40- hour work weeks. Martha can paint 20 rooms or wallpaper 5 rooms. Stewart can paint 10 rooms or wallpaper 8 rooms. # Done in 40 hours # Hours needs to do 1 room Paint Wallpaper Paint Wallpaper Martha 20 5 Martha
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