Class02_8

Class02_8 - 02/08/2008 Class Notes (cover part of Chapter 6...

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02/08/2008 Class Notes (cover part of Chapter 6 in the textbook) Class Outline Subsidies Quotas Review Ch.1-Ch.2 Subsidies Def. Subsidy A subsidy is a payment made by the government to a producer. Example: Subsidy to produce peanuts 1
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Def. Production Quota A production quota is an upper limit to the quantity of a good that may be produced during a specified period. Example: Production quota for sugar set at 40 millions of tons You can find DWL as we did when we showed that underproduction is inefficient! Review Ch1-Ch2 Chapter 1 Def. Economics Economics is the social science that studies the choices we make as we cope with scarcity , and the incentives that influence and reconcile our choices; Def. Scarcity Available resources are insufficient to satisfy all wants; SCARCITY CHOICE! 2
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Def. Incentives Rewards (=benefits) or costs that encourage or discourage an action. Example : 1. Economics is the social science that studies a) the real reasons people buy goods and services. b) the psychology of individuals and businesses. c) whether a nation has enough natural resources. d) how people allocate their scarce resources. Goods and services are produced using Factors of Production. The categories of factors of production are four: 1. Land/natural resources = all natural recourses, gift of nature (land, metal ores, oil, gas, coal, water, air etc) 2. Labor = work time and work effort that people devote to producing goods and services; 3. Capital = tools, instruments, machines, buildings and other constructions that businesses use to produce goods and services, durable goods of an economy, produced in order to produce other goods; 4. Entrepreneurship = the human resource that organizes labor, land and capital; Does capital include money? Answer: NO!!! Def. Microeconomics : is the study of the choice individuals and firms make, the way these choices interact in markets and the influence of governments. Economics Def. Macroeconomics : is the study of the national economy and the global economy. 3
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Financial capital such as money is not classified as capital because it is NOT a productive resource. In this class, capital refers to tools, instruments, machines, buildings, etc. Example 2. Money is not usually considered an economic resource because a) it is not scarce b) we don’t need money c) it can’t produce anything on its own d) spending money involves no economic cost Who gets the goods and services produced depends on the income they earn. Factors of production earn incomes:
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This note was uploaded on 04/29/2008 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue.

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Class02_8 - 02/08/2008 Class Notes (cover part of Chapter 6...

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