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ECON 208 (113)
Chapter 1

ECON 208 Chapter 1 Textbook Notes.pdf

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Economics (Arts)
ECON 208
Lee Ohanian

Chapter 1 Economic Issues and Concepts11The Complexity of the Modern EconomyEconomy a system in which scares resources are allocated among competing uses Economies tend to be complex systems and scares resources include land labour and machines capitalThe SelfOrganizing Economy Invisible HandThe great insight of economists is that an economy based on freemarket transactions is selforganizingWith Market Economies there is a spontaneous economic order because they are based on the selfinterests of consumers who make decisions independently based on the prices in open markets With thisthe collective outcome is coordinated based on the independent decisions of several different groupsThings that people want within the constraints set by the resources that are available to the nationSmith recognizes that not all economic interactions are motivated by benevolence kindness in a modern economy Efficient OrganizationEfficiency resources available are organized in a way so that all the goods and services that people require are fulfilled while being produced with the least possible amount of resources Main Characteristics of Market EconomiesSelfInterestIndividuals pursue their own selfinterestsIncentives Sellers want to sell more when prices are high buyers want to buy more when prices are lowMarket Prices and Quantities P and Q are determined in free markets where potential sellers compete to sell their products to potential buyersInstitutions Economic activity is governed and monitored by institutions that tend to be set up by the government Private property freedom of contract and the rule of law are the most important institutions they are defined by contracts legislation and enforcement12Scarcity Choice and Opportunity CostBecause we live in a world of scarcity where not everyone can have everything that they desire this brings choice the decision that people must make of what they will and will not haveEconomics is the study of the use of scares resources to satisfy unlimited human wants ResourcesLand includes natural endowments such as forests lakes minerals and oilLabour includes all mental and physical human resourcesCapital includes all manufactured aids to production such as tools machinery and buildings
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