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Lecture 2

Econ 105 Lecture 2 Jan 10th.doc

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ECON 105
Brian Krauth

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
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