Econ 105 week 1 lecture 2 notes
-GDP = gross domestic product (amount of stuff produced)
-Per Capita = per person
-Labor force = people who are working + people who are looking for work
Chapter 1 The 10 principles
How people make decisions:
1) people face tradeoffs (can't have everything)
2) the cost of something is what you give up to get it (also known as opportunity cost)
-ex. to go to university you give up money(tuition) as well as the opportunity to
have a full time job along with other things
3) rational people think at the margin
4) people respond to incentives (such as money)
How people interact:
5) trade can make everyone better off
6) markets are usually a good way to organize economic activity
- other possible allocation mechanisms: command economy, cueing economy
7) governments can sometimes improve market outcomes
- governments can provide things that markets can't provide, such as roads,
policing services etc.
How the economy as a whole works:
8) a country's standard of living depends on its ability to produce goods & services
9) prices rise when the government prints too much money
10) Society faces a short-run tradeoff between inflation and unemployment
Chapther 2 Thinking Like an Economist
- economist wants to understand how the economy works, and then try to make
recommendations for policies
- in both roles, economist rely heavily on models of the economy.
- scientific method = construct models whose key predictions are compared with data.
Keep models that are consistent w/ the data, throw away those that are not.
- normative vs. positive analysis