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ECN 340 (202)


9 Pages

Course Code
ECN 340
Thomas Barbiero

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ECN340 Meaning of economics A thought process or the unique manner in which we approach problems confronted by human beings • A mental kill that incorporates a special view of human behaviour • Arises because of: > Unlimited desires > Limited resources to satisfy those desires Unlimited desires includes both material and non material wants: love, health, friends, sex, vacations, ect. -There are limited resources to satisfy all these wants (including time) -People trade goods and services: they exchange those things they have in abundance for those they don't have and want to max satisfaction Thinking about values -Economics use the "amoral approach" to analyzing issues and problems • The amoral approach is devoid of our own values • The economist tries to understand the behavior of others, given their own values Abstractions • Economists use theory to explain the world around them • A theory is a simplification of generalization that captures a reality. i.e When the price of the products falls, generally, demand inc. • We will use theory (or models) to explain much of human behaviour • Acceptability?; we accept those theories that explain and predict Thinking about people • Focus is the individual • individual has values, makes choices, and takes action • Social goals reflect individual values; society is not independent from individuals thinking about rationality • Human beings act with a purpose; we assume they know what they are doing • cost/ benefit analysis • "rational addiction" • Any decision you make can be considered rational • Purpose is to improve their lot: to maximize satisfaction • But in trying to maximize satisfaction there are constraints: environmental, social, and biological • Many social scientists believe environment determines human behavior. Rather than influences it (what economists maintain) • Rationality: (cost benefit analysis) does not imply selfishness • Rationality postulates allows construction of powerful theories in economics Insatiability • Individuals prefer more to less of what they want. They are insatiable • Problem of uncertainty in trying to max. satisfaction: people choose an action each believes will give greatest satisfaction, but choices may not work out. i.e choosing a field job specialization may later prove to be unwise because there are no jobs Summary • People have desires • Scarcity of means in relate to desires creates economic problems • desires may be material or not • People know what they want and try to fulfill as many desires as possible subject to constraints • As individuals try to max. satisfaction sub. to constraints, choices may not work out Thinking about cost • Choosing one alternative means giving up another alternative cost • Opportunity cost • Cost is a constraint on action • Nothing is for free: Everything has a cost "there is not free lunch" • Money is just one way of measuring cost • Why do poor people ride busses and rich people fly? > Time is more valuable (rich people) because they earn more per hour • Emotional cost Thinking about the Margin of Cost • It is additional cost "marginal cost" that is important when we consider our course of action • Economists don't think in absolute terms. Actions depend on extra costs and benefits • Cost rise as production of any good or service rises. But you also need incentives to elicit more supply Law of Demand • Strongest possible predictive statement about human behavior • 1 reason the curve slopes downward is due to the "Law of Diminishing Marginal Utility" (DMU) The more of a product is consumed, the utility (pleasure) from additional units falls • DMU is one of the main reason for insatiability: people need new and better things Markets • There are many buyers and sellers in markets with diverse wants the abilities to provide goods and services • Markets allow exchange so people can get what they most value at least possible cost by training for those things they have and value less • Markets create competition • Individuals consume a product or a serve until MC=MB • If MB>MC can increase satisfaction by incorporating consumption • If MB
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