Class Notes (1,100,000)
CA (650,000)
UTSG (50,000)
ECO (2,000)
Lecture 1

ECO105Y1 Lecture Notes - Lecture 1: John Maynard Keynes, Asteroid Family, Global Warming


Department
Economics
Course Code
ECO105Y1
Professor
Avi Cohen
Lecture
1

This preview shows page 1. to view the full 5 pages of the document.
ECON 105 Online
2016/2017
Unit 1
Week of 12 September
1
1
1
2
2SCARCITY AND CHOICE
Because you can never satisfy all of your wants, making the most out
of your life requires smart choices about what to go after, and what
to give up.
3
3
·The problem of scarcity arises because of limited
money, time, and energy
·Economics is how individuals, businesses, and governments make the b
est possible choices to
get what they want, and how those choices interact
in markets
4
4OPPORTUNITY COST
Opportunity cost is the single most important concept both in econom
ics and for making smart choices in life.
5
5
·Because of scarcity, every choice involves a trade-off — you have t
o give up something to get something else
·The true cost of any choice is the opportunity cost — the cost of
the best alternative given up
·Opportunity cost is more important than money cost
·For a smart choice, the value of what you get must be greater than v
alue of what you give up
6
6
·Smart choices change as costs and benefits change
·Incentives
rewards and penalties for choices
·You are more likely to choose actions with rewards (positive incenti
ves), and avoid actions with penalties (negative incentives)
7
7GAINS FROM TRADE
Opportunity cost and comparative advantage are key to understanding
why specializing and trading make us all better off.
You're Reading a Preview

Unlock to view full version

Only page 1 are available for preview. Some parts have been intentionally blurred.

ECON 105 Online
2016/2017
Unit 1
Week of 12 September
2
8
8
·With voluntary trade, each person feels that what
they get is of greater value than what they give up
·Absolute advantage
the ability to produce a product or service at
a lower absolute cost than another producer
·Comparative advantage
the ability to produce a product or service at
a lower opportunity cost than another producer
9
9
·Opportunity cost
·Comparative advantage key to mutually beneficial
gains from trade
·Trade makes individuals better off when each
·Specializes in producing a product or service
with comparative advantage
(lower opportunity cost)
·Trades for the other product or service
·Production possibilities frontier (PPF)
graph showing maximum combinations of products
or services that can be produced with existing inputs
10
10 Jill’s Production Possibilities
11
11 Marie’s Production Possibilities
12
12 Opportunity Costs for Jill and Marie
13
13 Mutually Beneficial Gains from Trade:
Jill’s Gains from Trade
14
14 Mutually Beneficial Gains from Trade:
Marie’s Gains from Trade
15
15
·Specialization according to comparative advantage and trade allows e
ach trader to consume outside her PPF, an impossible combination wit
hout trade
·All arguments you will ever hear for freer trade are based on compar
ative advantage
·Even if one individual has absolute advantage in
producing everything at lower cost, differences in comparative adva
ntage allow mutually beneficial gains from specializing and trading
You're Reading a Preview

Unlock to view full version