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Lecture

Chapter 1-2-4-5.docx

3 Pages
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Department
Economics
Course Code
ECN 204
Professor
Christos Shiamptanis

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Chapter 1  Principle 1 -People face trade offs (we make choices). Would I rather study for macro or go and have fun?  Principle 2 –Opportunity cost is the choice you give up to achieve another one  Principle 3- Rational people think at the margin. Making decisions that make you happier, thinking at increments. (Extra, additional). Comparing the extra cost and the extra benefit. (Going to school an extra four years).  Principle 4- People respond to incentives. An incentive is something that induces a person to act i.e. an reward or punishment. (Paying students 20$ to attend class. Doing something to make people do something).  Principle 5 – Trade can make everyone better off –if you do something your good at and trade it with someone else that specializes in something they are good at, it benefits everybody.  Principle 6 –Markets are usually a good way to organize economic activity. To allow people to produce and consume whatever they want. Adam smith introduced the “invisible hand” to show an invisible notion of how the market allocates.  Principle 7 –Governments can sometimes improve market outcomes. Government is there to restrict our market. i.e. enforce property rights, promote efficiency, promote equity.  Principle 8- A country’s standard of living depends on its ability to produce goods and services. Productivity: become better at doing something and producing more.  Principle 9- Prices rise when the government prints too much money. Inflation: increase in the general level of prices. Government has affect on prices, when they print too much money things get out of control.  Principle 10- Society faces short-run tradeoffs between inflation and unemployment. Prices increase while unemployment decreases and vice-versa. Every year government tries to control this. Chapter 2  Economist play two roles: Scientists (try to explain the world) & Policy advisers (try to improve it).  You make a model to explain how things are. Economist use these models to show how the economy works.  Positive statements – which attempt to describe how the world is. Wrong or right  Normative statements – which attempt to prescribe how the world should be. Chapter 4  As price falls demand increases  Many other factors affect demand of a product, not only price  Price- causes movement along the D curve  # of buyer/Income/Price of related goods/Tastes/Expectations- shifts the D curve  Demand for a normal good is positively related to income. ( coffee, cars. Something you like, while inferior goods are things you don’t like .i.e. buses)  Every time you have a higher income the demand curve will shift
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