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Lecture 2

Economics 1021A/B Lecture Notes - Lecture 2: Opportunity Cost, Human Capital, Ceteris Paribus

Course Code
ECON 1021A/B
Michael Parkin

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Economics 1021Principles of Economics
September 15, 2015
Chapter 1 Continued
Human capital effects the quality of labour
Sometimes it’s best to leave markets alone
When a consumer purchases goods they act in their own self interest (rational consumers;
do things to make yourself as best off as possible, benefits with what you bought and
with the price you paid for it)
Producers behave rationally
Maximizing net benefit is to pursue things until the benefit is maximized and there is a
social optimal
Equilibrium with production and consumption (private interest does not coincide with
social interest-pollution, climate change, and net benefits will not be maximized)
When a producer decides to produce a certain amount of product, it doesn’t take into
account social interest and cost
If something is efficient, the goods are produced at the least cost and the goods are going
to the people who value them the most
Dead weight loss- market failure
What is best for society
Maximizing net benefit (efficiency)
Equity/fairness (health care, subsidising post secondary education)
Scarcity: limited amount of resources lead us to make choices because we can’t have
When we face scarcity we face opportunity cost (involves the best alternatives)
How much of something should be done, how much money should be spent? We
approach these issues marginally
When markets are not achieving efficiency or equity, then governments should intervene
(taxes, policies, subsidies, incentives; rewards and penalties)
Incentives influence people towards social optimal and promote social interest (tuition
fees, junk food, cigarettes)
Governments can create a market failure
Microeconomics look at markets and wants to do something
Positive analyses (when this happens we expect this to happen, can be proven with fact)
Normative analyses (we ought or should do something; free health care, post secondary
education, based on opinion and can’t be tested) (rent on student housing is too high/
should be lower)
Positive statements can actually be false but can be tested with fact (Christmas Day falls
on October 31)
Efficiency and equity are normative objectives
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