ECON 102 Lecture Notes - Lecture 2: Productive Forces, Ceteris Paribus, Opportunity Cost

• School: U of M
• Department: Economics
• Course: ECON 102
• Professor: Adam Stevenson

Document Summary

Models - simplifications to understand complex situations and draw conclusions of cause and effects. We suppose the world works as if the model were true. Ceteris paribus - assumption all else equal . All relevant moving parts remain constant and aren"t of interest to the application at hand. A simplification of a human being in order to learn how to perform cpr. In the real world, all else is not constant: models are inherently false. Simplest model of the macroeconomy: the circular flow model. 2 agents (economic actors ): households (consumers) and firms (producers) 2 markets (forums for exchange): goods and services and factors of production. The actual things being produced and sold. 1 group"s spending is another group"s income. Money facilitates the flow of g&s, alleviating barter"s necessary double coincidence of wants . 2 ways to measure total economic activity: factor market income or spending on g&s.