MGEA02H3 Lecture Notes - Lecture 1: Aggregate Supply, Aggregate Demand, Natural Monopoly

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Published on 19 Jan 2016
School
UTSC
Department
Economics for Management Studies
Course
MGEA02H3
Topics for MGEA02H:
- Opportunity Cost; Production Possibility Frontiers
- Demand and Elasticity
- Costs and Supply
- Perfectly competitive markets - short and long run
- Monopoly markets
- Efficiency in markets; regulation of natural monopoly
- Oligopoly markets
- Market Failures: externalities (e.g., pollution) and public goods (e.g., public health)
- International Trade
Microeconomics - The study of individual markets in the economy (demand and supply,
determining price and quantity).
Macroeconomics is the study of the functioning of the overall economy: Aggregate
Demand, Aggregate supply, unemployment, inflation, the value of the dollar, the level of
interest rates, recessions, booms, financial crises
What is Economics?
Economics is the social science that studies the production, distribution and
consumption of goods (tangible) and services (intangible).
Every economic issue involves individual choice - decisions by individuals about what
to do and what not to do
Classic definition
“Economics is the study of how people make choices under conditions of scarcity and
what the results of those choices are for society
What is scarce?
Resources (factors of production):
Land - Air, land, minerals, water, raw materials, etc.
Labour & Human Capital - Labour, skills, etc.
Capital (Equipment) - Factories, machinery, equipment, etc.
Are economic resources really scarce?
Yes.
Choices have to be made.
Suppliers make decisions about supplies. They compare their benefits to the
costs/expenses needed to produce their goods and services. Their main goal is to
maximize profits.
How do people make economic choices?
Compare benefits to costs
What are the benefits? What are the costs?
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Benefit: What you can from consumption
Cost: The amount used in buying or producing a good
Opportunity Cost
The cost of taking an action is measured by the value of the next best alternative action.
Based on scarcity of resources. If you do something, you have to give up doing
something else you might have done.
Opportunity cost = value of the alternative foregone (value of the benefit that could
have been generated by the resources in their next best use)
What is the opportunity cost of going to university? (what do you “give up” when you go
to university?)
The money and time spent by coming to university.
Should you include your apartment rental, food and entertainment costs as part of the
opportunity cost of going to university?
Generally no, because you would have probably needed to get an apartment anyways.
Overall, it is a cost, but it is not an opportunity cost.
Explicit costs (i.e., money costs) and implicit costs (i.e., value of time). Both part
of opportunity costs. Both are given up when the action is taken.
What is the opportunity cost of getting married?
The change in your life and the cost of the wedding.
What is the opportunity cost of taking a month-long vacation?
The lost of time, lost of wages, and cost of holiday.
Does it depend on when you take it?
Yes. Example: student. If a student takes it, their opportunity cost is their grades.
Does opportunity cost really matter? Do we make decisions according to opportunity
cost?
Why are you young?
Our opportunity cost is lower, compared to those who are older.
Why do “adults” take evening courses?
Thier opportunity cost of time is lower (seeing as this is when they have thier "down"
time)
Why do senior citizens take more holidays?
They have more time.
The point is that…
When resources are scarce, choices must be made about how those resources will be
used.
And then, the real cost of using the resources in one way will be that you give up the
“output” you might have gotten by using them in an alternative way
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Document Summary

Perfectly competitive markets - short and long run. Efficiency in markets; regulation of natural monopoly. Market failures: externalities (e. g. , pollution) and public goods (e. g. , public health) Microeconomics - the study of individual markets in the economy (demand and supply, determining price and quantity). Macroeconomics is the study of the functioning of the overall economy: aggregate. Demand, aggregate supply, unemployment, inflation, the value of the dollar, the level of interest rates, recessions, booms, financial crises. Economics is the social science that studies the production, distribution and consumption of goods (tangible) and services (intangible). Every economic issue involves individual choice - decisions by individuals about what to do and what not to do. Economics is the study of how people make choices under conditions of scarcity and what the results of those choices are for society . Land - air, land, minerals, water, raw materials, etc. Labour & human capital - labour, skills, etc. Capital (equipment) - factories, machinery, equipment, etc.

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