EC201_L01

EC201_L01 - Introduction and Motivation Our discussion:...

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Econ 201 - Principles of Microeconomics 1 Introduction and Motivation Our discussion: Three questions for every economy Prices and markets Theory An example Scarcity and competition Cost Demand and Supply 1) What should we (our economy) produce? 2) How should we produce? 3) For whom should we produce? 1. Three Questions…
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Econ 201 - Principles of Microeconomics 2 Socialism: an economic system based on individuals’ good will toward others, not their own self-interest – in principle, society decides what, how and for whom to produce Feudalism: an economic system in which traditions rule. – If your parents were serfs, you were a serf. – Feudalism dominated the western world from about the 8 th to the 15 th century. The Organization of an Economy Mercantilism: an economic system in which government determines the what, how and for whom decisions by doling out the rights to undertake certain economic decisions. – Mercantilism remained the dominant economic system until the 1700s (the industrial revolution). Capitalism: an economic system based on private property and the market in which, in principle, individuals decide how, what and for whom to produce. – Under capitalism individuals are encouraged to follow their own self-interest while market forces of supply and demand are relied upon to coordinate those individual pursuits. – Distribution of goods is to each individual according to his or her ability, effort, and inherited property. Fascism - You have two cows. The government takes both, hires you to take care of them, and sells you the milk. Marxism - You have two cows. Your neighbours help take care of them and you all share the milk. World history through the ownership of cows
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Econ 201 - Principles of Microeconomics 3 Communism - You have two cows. The government takes them both and denies they ever existed and drafts you into the army. Milk is banned. Capitalism - You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income. Enron-Venture-Capitalism: You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. 2. Prices and Markets
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EC201_L01 - Introduction and Motivation Our discussion:...

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