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CAS EC 102 (73)
Chapter 1

Chapter 1 Lecture.pdf

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CAS EC 102
Jay Zagorsky

Chapter 1 Lecture Thursday, January 16, 2014 4:10 PM - Macro studies market forces beyond control of any one person or firm - Example: ○ You make Micro decisions:  Type of job  Accept or reject an offer? ○ But Macro factors are key  Lots of offers or only a few?  Is pay high or low? - Key problems to discuss in macroeconomics ○ Who's rich and poor? ○ How many are hungry and homeless? ○ Are there enough resources in the world? ○ How much does it cost to live? - What is Economics? ○ Primarily about dealing with one problem - 1st Key Idea ○ Society has scarce resources  The management of society'sresources is important because resources are scarce  Scarcity means that society has limited resources and thereforecannot produce all the goods and servicespeople wish to have  Economicsis the study of how societymanages its scarce resources - Past ○ Understand what choices societies have made ad ramification of those choices - Present ○ Understand the current tradeoffs societyis making - Future ○ What are important - 5 Key Ideas ○ Incentives ○ Money  Money is important  Money is magical  Money is a signal of quality  Money is a measuring stick ○ Scarcity ○ Interconnection ○ NOT a zero-sum game - Key Idea: Incentives ○ Anything that cause people to change their actions ○ Two types of incentives: Positiveand Negative ○ Examples:  Grades, pay and traffic circles in India  Right incentives improveeconomicconditions  Wrong incentives can destroy a country ○ Reduce gasoline usage  Mexico City wanted to reduce number of cars □ Set days for each license plates for driving to reduce traffic □ Negative incentive; takes car away □ People buy multiple cheap cars instead of expensive eco friendly cars - Key Idea: Money is Important - Key Idea: Money is Important ○ Money is a big incentive and incentives matter ○ Expression: "Money is root of all evil" - Key Idea: Money is Important II ○ Money is magical  It allows societiesto produce far more by eliminating barter  Must have a double coincidence
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