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ECO Notes.docx

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Department
Economics
Course
ECO1102
Professor
All Professors
Semester
Fall

Description
ECO1102 Bdont email he probably wont answer ask him after class or ask a TA or office hours TBD EvaluationMidterms3 x 15 MC onlyAssignment 10 released during reading weekFinal 45 all topics Mc onlysample exam questions with answers will be provided online along with several pastyear examinations hopefully with answers hopefully with correct ones never trust answers or information Chapter 1LO1Learn that economics is about allocation of scarce resources2Examine some of the tradeoffs that people face3Learn the meaning of opportunity costs4See how to use marginal reasoning when making decisions5Discuss how incentives affect peoples behavior6Consider why trade among people or nations can be good for everyone7Discuss why markets are a good but not perfect way to allocate resources8Learn what determines some trends in the overall economy Ten Principles of EconomicsEconomy Greek word for one who manages a householdHouseholdseconomies1who will work2What goods and how many of them should be produced3what resources should be used in production4at what price should the goods be soldEconomicsscience of efficiency we have to make choices the study of how society manages its scarce resourcesthe management of societys resources is important because resources are scarceScarcitySocietyohas limited resourcesocannot produce all the goods and services people wish to haveTen Principles of EconomicsHow people make decisions microeconomicsour focus is almost exclusively on efficiency1People face tradeoffsthere is no such thing as a free lunchto get something we usually have to give up something elseguns v butterfood v clothingleisure time v workefficiency v equityEfficiency society gets the most that it can from its scarce resources you have a certain quantity of resources which are used to produce goods and services Equity the benefit of those resources are distributed fairly among the members of society resources labour land capital these are known as passive resources they are not decision makers as suchalabourpassivebland passiveccapital passiveiphysical capital machineryiihuman capital knowledgedentrepreneurial spiritwhat decides what will be produced hownot passivemaking decisions requires trading off one goal against another some people are better at some things than other things Given that we cant do everything we want we have to decide what is best for uswhat will maximize our economic wellbeing 2the cost of something is what you give up to get itDecisions require comparing costs and benefits of alternativeswhether to go to college or to workwhether to study or go out on a datewhether to go to class or sleep inopportunity cost of an itemwhat you give up to obtain that item what you forego in order to obtain this item or do this thingwhich one is the most satisfying alternative the best alternative to what you did what you gave up for instance is the cost of being here this morning that cost is the opportunity cost we are talking about economic cost not accounting cost 3rational people think at the marginmarginal changessmall incremental adjustments to an existing plan of actionpeople make decisions by comparing costs and benefits at the marginwhen you have to decide on the best option you have to do a cost benefit analysis what is the incremental benefit of doing this and what is the cost of not doing that you only change your life marginally incrementally etc 4people respond to incentivesmarginal changes in costs or benefits motivate people to respondthe decision to choose one alternative over another occurs when that alternatives marginal benefits exceed its marginal costsyou have to look at both prices and cost to get to the best idea 5trade can make everyone better offpeople gain from their ability to trade with one anothercompetition results in gains from tradingtrade allows people to specialize in what they do bestwe cannot excel at everything some people individually collectively are better at some things than us this is how you become better off by trading with somebody else but all of these trades must be voluntary you cannot have coerced trade here when all trade is voluntary in most cases it is a winwin situation it does not mean that the gains are split 5050 but everybody wins If trade is not voluntary then it is a loserwinner situation in other words your wellbeing will decrease we can all do this because if you trade with people people will specialize and you will see that some people can do a far better job at doing certain things than others canadam smith at the end of the day specialization focus on a narrow portion of a product will increase efficiency this will generage large wellbeing in the economy trade is good as long as it is voluntary6markets are usually a good way to organize economic activityyou do not have enough resources to doproduce everything markets supplydemandbuyerssellers markets are there to optimize the allocation of ressources to get the biggest bang for your buck for instance if your car breaks down or if you want to build a house you can do it yourself but it will cost you a lot of time to learn how to do it and time is money A specialist builder car repairman can do it much more efficientlymarket economyan economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and servicesmarkets are not truly efficient either because of asymetric information or because of market structure etc the real focus is that you have specialists in a market economy who will take less time and therefore more efficient householdsdecide what to buy and who to work forhouseholds supply labour and buy goods and servicesdecisionmakerfirmsdecide who to hire and what to producedecisionmakerproduce goods and services that households purchase produced on the basis of labour provided by householdsthese markets are based on two decision makers householdsfirms other decision makers in a modern economy govtbuys and makes decisionsforeign sector a lot of canadian goods are exported buys goods and services and supplies us with capitalAdam smith made the observation that households and firms interacting in markets act as if guided by an invisible handbecause households and firms look at prices when deciding what to buy and sell they unknowingly take into account the social costs of their actionsas a result prices guide decision makers to reach outcomes that tend to maximize the welfare of society as a whole7governments can sometimes improve economic outcomesmarket failureoccurs when the market fails to allocate resources efficientlymay be caused byan externality which is the impact of one person or firms actions on the wellbeing of a bystandermarket power which is the ability of a single person or firm to unduly influence market prices
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