ECO1104 Sep.17 , 2013
YUJIE YI #7038840
※ Centralized Economy: Choices are made by individual producers,
The central planning bureau sets OUTPUT quotas for production units.
(getting the government permission)
The central planning bureau allocates the inputs and specifies the
The central planning bureau allocates the goods and services to workers
Other key features include:
It is EGALITARIAN(平平平as it rewards all agents relatively equally
Quote of Marx
Quote of Orwell from “Animal Farm”
It is INEFFICIENT in that shortages and surpluses are common, and
STATIC 平平as it does not adjust rapidly to changes in technology, consumer
tastes, demography. (produce more of what the consumers want, and less
of what they dislike)
Producers cannot react quickly. All orders to produce more of this and less
of that have to go through a very long chain of command.
SUMMARY OF INTRO
MICROECONOMICS IS ALLABOUT…
1/5 P’s and Q’s
Why are prices what they are?
Why are quantities what they are?
E.g.: Prices: wireless communication (cellphone)
※ Use ECONOMIC MODELS as our primary analytical tool for economic
events and behaviour (The primary models are SUPPLY and DEMAND
NOT designed to imitate reality with exactness, but rather to describe the
workings of the economy and to make prediction.
By necessity, models involve gross simplifications, and are based on
assumptions which are often unrealistic.
Consist of premises, rather than unqualified predictions.
- Example: I am asked so often: What is going to happen to interest
rates or exchange rates?
- I respond: That depends on … IF rates in the USA go up, THEN rates
in Canada will go up.
Primary model for the course is the Supply and Demand Model.
※ ILLSTRATION OF WHAT ECONOMISTS DO
Forecasting is a small part of it
Apply microeconomic analysis to the obesity epidemic
In USA obesity rates have doubled since 1990
One contributing factor is economic (there are other forces at work)
After adjusting for inflation, price of fruits and vegetables up 75%
After adjusting for inflation, price of fats down 27% ECO1104 Sep.17 , 2013
YUJIE YI #7038840
Thus consumers have an economic incentive to say “super-size me”
and eat accordingly
※ Adam Smith – Economic philosopher
The “father” of modern microeconomics
Greatest contribution was seeing how markets function
The “invisible hand” notion
All economic agents are motivated by greed rather than generosity …
Consumers want the lowest possible price
Producers want the highest possible price
So how could the economic system work at all?
Due to the forces of competition, everyone’s greed is channeled by