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ECO100Y1a.doc
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Lecture #1 Tuesday, September 8, 2003
BIG QUESTIONS IN ECONOMICS
What?
What goods and services are to be produced?
Where do resources go?
How?
How will goods and services be produced?
Lots of workers and few machines? Lots of machines and few workers?
Mass production or customized?
When do goods and services get produced? weather limitations
Where do goods and services get produced?
For whom?
Who gets the goods and services produced? distribution
Objectives For An Economy
equity fair
efficiency scarcity of resources
full employment
growth GDP, GDP/capita
stability inflation, exchange rate, balance of trade
SYSTEMS
Market Based System
market where buyers and sellers interact
equilibrium between buyers and sellers determines what gets produced, prices, etc
money medium for exchange
government provides framework for this to operate in a mannerly fashion law
Command Based System
central authority determines what gets produced, quantity, price, where labourers work
no competition not efficient
Mix System
government intervention is beyond the market system
PRODUCTION POSSIBILITY CURVE (PPC)
Assumptions
only two goods are produced: guns and butter
fixed resources/inputs/capital/technology
efficient
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ECO100Y1a.doc
Page 2 of 18
linear transformation is constant
C unobtainable
D underutilization, unemployment
E full employment
G to H sacrificed 2 butters for 1 gun
opportunity cost
non-linear hard to transform from butter to gun
Lecture #2 Monday, September 15, 2003
MARKET ECONOMY
Guns
(Million Crates)
Butter
(Million Cases)
1
5
5
1
A
C
D
E
G
H
Guns
(Million Crates)
Butter
(Million Cases)
10
5
2
1
Households
Firms
Input
Markets
Output
Markets
$ purchases
G & S
G & S
$ purchases $ sales
$ sales
inputs
inputs
How?
What?
For
Whom?
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PARTIAL EQUILIBRIUM ANALYSIS (SINGLE MARKET): SUPPLY AND DEMAND
Demand For Good X
Px 0<
x
D
x
P
q
Household income 0>
I
qD
x (normal good),
0<
I
qD
x (inferior good)
Py, Pz price of other goods 0>
y
D
x
P
q (substitute),
0<
z
D
x
P
q (complement)
Tastes/preferences
Expectations what is going to happen in the future?
Aggregate Market Demand For Good X
Shifting of the demand schedule
Household income
Prices of other goods
Tastes/peferences
Expectation
Supply For Good X
Px 0>
x
S
x
P
q
Costs of inputs 0<
i
S
x
P
q
Technology more efficient
Py, price of other goods
Number of suppliers
Aggregate Market Supply For Good X
Shifting of the supply
Cost of inputs
Technological advancements
Price of substitutes and complements
Number of suppliers
P
q
S1
S2
S3
P
q q1 q2
P2
P1
D
P
q q1
P1
S
P
q
D1
D2
D3
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