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ECO 100Y1- LA#1- Class Note- 20110912.docx

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ECO 100Y1- LA #1- First Principles 1) Some First Concepts a) What is Economics all about? - Economics is about limited resources and how they are utilized to satisfy what you and I want (Consumers & Household) - Resources are scarce, because of that, we have to use it wisely to satisfy the demands - Types of Resources (Inputs) 1) Natural (LAND) 2) Human (LABOUR) 3) Capital – aid in production - Production- all about Inputs (Factors of Production) into -> Outputs – Commodities – Goods/Services - Outputs- is commodities which can be used as goods and/or services b) Big Economic Questions 1) WHAT? (What will be provided) 2) HOW? (How will they be produced) 3) FOR WHOM? (who gets what’s produced) ** Sometimes there will be questions such as WHEN? (Differs between seasons) and WHERE? (Where natural resources are) ^ - the model answers individual questions for Goods and Services c) Growth - Growth would be asking yourself – is the total getting bigger/larger? - Unemployment? - Price Economy- what’s happening to the price level- Inflation/Deflation - How does everything affects growth d) MICROECONOMICS vs. MACROECONOMICS a) Micro-economic- study of individual (individual market) decisions by firms & Consumers - Well represent the supplier and demander relationship - Determination of the price & Quantity b) Macro-economic- determines the average price - calculates the output of the country - Decision- making of the entire economye) Market-Based Economic System a. Allow consumers to decides b. Consumer demand c. Limited Government Involvement d. Buyers& sellers interact e. Solution where buyer and seller agrees is the equilibrium f. Firms earn revenue from consumers then buy inputs g. Individual questions answer micro questions h. Micro questions- results of adding all the values of all things is produces and calculate its average i. Market for all input side j. Market for all commodities k. $$ money is the key mechanism to buy & sell 2) First Example of Economic Model a) Production Possibility Curve (PPC) - Scarcity at Macro-level st - 1 economic model - We imagine a world that can only (with Given Technology) produce 2 goods – guns & Butter (Military & Civilians) - Constant transformation rate - Given technology –fixed inputs can be used to make outputs- max amount of each Max Guns= 5M Crates Max Butter= 10M Cases - Production Possibility Curve - Scarcity is shown... that there is a limit to what is being produced (Cannot Reach C) - Point D- not every resource is being utilized – not being used at max. - Point E to F, to produce more of one, you got to make less of another (Opportunity Cost) - Opportunity Cost of 1 Gun Crates is 2 cases of Butter - F to E- ½ crate of Guns OC of 1Gun= 2 Butter OC of 1Butter= ½ Guns - Slope of PPC= Rise / Run= -2 or 2 - Opportunity Cost- the price you must sacrifice in order to obtain something else that can be produced with the same values 2b) Economic Growth - It Shifts out - Gets a new PPC - Points Previous unavailable can be produced now - Gaining & Productivity - 2c) Non-Linear PPC - More reflective of more realistic world - Not perfectly mobile, transferable throughout
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