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Department
Economics
Course
ECON 1050
Professor
Eveline Adomait
Semester
Fall

Description
Cocktail Party 9/7/2013 3:51:00 PM Chapter 1: Its All about Scarcity - scarcity creates costly choices - scarcity creates problems that need solving - if ten stones create a sensation and twenty people clamor after the ten stones there would be a problem, we would now consider these stones a scarce commodity because there are more people that want them than there are stones available – if 100 people wanted them the stones would become even scarcer - scarcity creates problems; who gets the scarce item, if twenty people want the stones, then of the twenty who ask for one, only ten will receive a stone - refer to page 9: implications of scarcity - distribution is also a problem with scarcity: there needs to be some kind of system that gets the stones into the hands of the right ten people - economists generally see markets as the preferred allocation method because they can perform the task most effectively - once something is scarce, it is no longer free for the taking, which creates an allocation problem that needs solving - the greater the scarcity of something, the more it costs to acquire - the official term for what we give up to get something else is called opportunity cost: the choice you didn’t make is the opportunity lost - refer to page 15: make me a match, find me a find, catch me a catch - if the personal value of the item is more than its opportunity cost (something you could have used the money for instead), you buy. If it’s not, you don’t bother Cocktail Party 9/7/2013 3:51:00 PM Chapter 2 Value: Where Emotions and Economics Collide - refer to pages 22 and 23: revealed preferences - infertility and baby story, to some people value is infinite but when it comes to infertile couples for example high costs are now revealed - scarcity also captures the idea of how many people want or value an item - market value is about both sides of the fence: the quantity available and the valuations placed on that quantity - the price paid for the item is called it’s market value - Marxian economists propose that the market value of a good should be based on the quantity of labor used to make it - making yourself more extraordinary and your skills less common will up your value in the labor market; improving your education or work experience, your services become a scarcer commodity - economics call the price of something it’s marginal value or incremental value rather than its total value; the idea of margin or increment means that you’re looking at items one at a time and treating them separately - refer to page 27; examples of marginal value - the paradox of value: the more abundant something is, the less we pay for it but the greater overall total value it has in the economy - these first two chapters give you the basics to understand how trade works and why so many people are willing to engage in it; when people have different values for scarce goods, trade is the next logical step - market prices reveal something about how much is available and how we value it Cocktail Party 9/7/2013 3:51:00 PM Chapter 3 Exchange: Supply and Demand, Take One - costs and benefits bring us to the concept of supply and demand, the buzzwords of economics - when you give something up, you are supplying or selling it; when you get something, you’re demanding or buying it and sometimes money is involved, sometimes it isn’t - refer to page 30; irrelevant footnotes that are interesting - economics call the benefits of a mutually satisfying trade the gains from trade - barter is the trade of real things for real things; no money is involved - markets require the willingness of both players to exchange something of value at a price they can agree upon - money is just a way of storing value until it is convenient to purchase something real; for most people, the real trade is labor hours supplied in exchange for goods and services demanded - work (real), get paid (money), buy stuff (real) - individuals in countries trade with each other, and countries keep track of the numbers that move in and out of their borders - trade agreements are set up so these terms and conditions allow citizens in their respective countries to negotiate trades - any country that produces goods and services but doesn’t trade with the outside world is called autarky, which means self-sufficiency - free-trade can take a terrible situation and make it slightly better, it cannot fix the underlying production problems - countries, through their laws and institutions, influence the environment within which markets operate - free exchange can make both people better off Cocktail Party 9/7/2013 3:51:00 PM Chapter 4: Producing Wealth - wealthy nations are not lucky countries but rather are productive ones; they take the inputs available to them, whether small or great, and efficiently make outputs from them, this is called production process - production process, where productivity is the key to a growing economy - anything that makes something else is called an input, when brought down to the most basic level, inputs are resources, and these separate into broad categories - refer to pages 39 – 41: List of four inputs; land, raw materials, environment and physical capital - when economists speak of capital, they usually mean physical capital such as machines, inventories on hand, and buildings; things that can produce goods - the term capital markets in the business news is usually associated with paper assets such as stocks, bonds, loans, or mortgages rather than the real assets such as machines, buildings, and inventories; economists call paper assets financial capital - refer to page 45; input of going into labor (developing countries solution to child labor) - real wages are wages that have meaning only in relation to what those wages buy; refer to page 46 for explanation - refer to page 47; last input of chapter, Entrepreneurial Ability - patents limit the production of socially beneficial products - all of the scarce resources or inputs we have discussed in the chapter, are used in combination with each other, to produce things; economists call these things outputs - people buy these outputs and experience the standard of living that these things bring - refer to page 49 - 50; list of ways to get out of poverty and into a decent standard of living - you need inputs to make outputs Cocktail Party 9/7/2013 3:51:00 PM Chapter 5: The Absolut(e) of Comparative Advantage - when an economist talk about trade, they include the word specialization before the word trade - most people produce specialize goods, a pile of goods that is limited in variety, and use those goods to trade for a wider variety of goods that they want or need - individuals who specialize can make more money - specialization allows us to do more with what we have, more production leads to more consumption - everyone doing a little of everything will produce less with the same resources than everyone doing one thing and trading with others for what they did not make - refer to page 54 - 55; inspiring quote and comparative advantage and absolute advantage are explained - as a company produces more and more of something, the average cost of producing that item goes down - protectionism tries to eliminate any comparative advantage of another country by “leveling the playing field” these policies may include: - 1. Tariffs (think taxes) on imported goods to make them more expensive to buy - 2. Quotas that allow only a limited amount to enter the country - 3. Rules and regulations that make it difficult for a foreign firm to sell it’s products in the importing country - 4. Government subsides and tax breaks (sometimes known as handouts) to firms you cannot compete with foreign companies - the problem with protectionism is that once we “level the playing field”, there is no benefit to trade; if everyone’s opportunity costs for identical items are the same, no one will ever treat with anyone else - refer to pages 59 – 60; explanation of protectionism - comparative advantage will determine what people will supply Cocktail Party 9/7/2013 3:51:00 PM Chapter 6: Supply Side (A Venti Chapter) - key points made in the previous chapters: - 1. People produce things with scarce resources - 2. Scarce resources mean there is an opportunity cost to use them - 3. The most efficient way to make a good, is to use the inputs or
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