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Chapters Summary.doc

20 Pages

Course Code
ECON 1010
George Georgopoulos

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Chapter 1Economics and the EconomyEconomics is the study of how society decides what how and for whom to produce goods and servicesEconomics is a social science method of analysis dealing with scarce recourses allocation problem and societal issuesHighgrowth economies usually allocate a large share of their resources to improving their capital stock save and invest and foster institution and property rightsThe Production Possibility Frontier PPF shows for each output of one good the maximum amount of the other that can be produced PPF defines the tradeoffs but does NOT solve the problem of scarce resources The Opportunity Cost of a good is the quantity of other goods that must be sacrificed to get an increment in the first goodProduction Efficiency means that more output of one good or service can be obtained only by sacrificing some output of another good or service Expanded the production possibilitiesMore productive capital more people working and Technological improvement Comparative Advantage involves determining the opportunity costs of production for different producers Markets are institutions that bring together buyers and sellers of goods and services In a Command Economy a government planning office decides what how and for whom goods and services will be produced A Free Market is one in which governments do not intervene significantly The Invisible Hand Adam Smith 1776 is the assertion that the individual pursuit of selfinterest within free markets may allocate resources efficiently from societys viewpoint A Mixed Economy is one where goods and services are supplied by both the private sector and the government Positive Economics studies objective or scientific explanations of how the economy functions Positive economics generate predictions causeeffect relationship about how it may respond to changes and policy initiatives Normative Economics offers recommendations that incorporate value judgements Economic Equity is concerned with distribution of wellbeing among members of the economy An Economists CredoIncentives MatterPrices determine behaviour Markets and trade play a key role in improving economic wellbeing Property rights are vital to developmentPublic policy can improve wellbeingMissing market No marketpollution market failures Unregulated market activity Purpose is generate tax revenues for positive uses and reduces harmful activities Marginalist thinkingThinking about both costs and benefits then determine the rightsuitable sizeway Not in all or nothing but how much is the best Microeconomics analyzes individual decisions at the household and firm level 1Macroeconomics is the study of the behaviour and performance of the whole economy as a system and the total output of goods and services 2
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