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01.07 - Intro to Economics.docx

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ECON 102
Lanny Zrill

Intro to Economics 01-07-2013 What is economics?  The study of the use of scarce resources to satisfy unlimited human wants  Preferred definition: a way of thinking about all human behavior  Application: how interest rates are determined by the Bank of Canada, the causes of unemployment, financial markets, etc. Big Ideas  What is the appropriate distribution of income and wealth in society?  How can we manage our scarce resources and the environment?  Should there exist institutions to help those in need? Positive vs. Normative Issues Positive statements – statements of fact o When interests rates go up, people save more o Can be evaluated by appeal to facts Normative statements – value judgments o Tax revenue should be used to develop programs and institutions to help those in need  Cannot be settled by appeal to facts … arguments persist forever What is the Economy?  An inconceivably complex system of interactions between individuals for the purpose of exchanging commodities Two Questions  How is such a complex system organized and by whom? o No one. Economic transactions are the result of mutually beneficial and voluntary exchanges between individual entities (persons, firms, the government) o These uncoordinated interactions are remarkably effective at facilitating the exchange of goods and services (the invisible hand, Adam Smith) o Yet the economy is not an unregulated free-for-all (ie. Hobbes’ State of Nature)  How are we supposed to make any sense out of something so complicated? Basic Functions of the Government (to regulate economic transactions)  Rule of Law and Enforcement of Property Rights  Provision of Public Goods (ex. pub
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