Principles of Economics

Principles of Economics - Principles of Economics 07:58:00...

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Unformatted text preview: Principles of Economics 22/01/2009 07:58:00 ← ← 1/22/09 (Class 2)- Reading Assigned: Ch. 1 – Ch. 3 • Economics is the study of choice • Efficiency and Equity Simple Example Guns and roses o Suppose a particular society could produce 0 to 4 guns o Defense expenditures, essentially o The second thing that could be produced is roses A – 0 guns – 20 roses B – 1 – 19 C – 2 – 16 D – 3 – 9 E – 4 – 0 • PPF- negatively sloped • Represents all combinations of guns and roses that our society can produce efficiently using current technology • The line on the PPF is the most efficient production • Introduce a third column to the table OCG • What is the opportunity cost to produce the 1 gun? o You lose run rose • What is the opportunity cost of producing the second gun? o Three roses • Third gun is seven, and the fourth is nine. • The opportunity cost of guns is increasing • As you produce more and more guns, it costs more and more in terms of what you’re giving up • Eventually you have to move people who can make guns and force them to make roses • Example 2- Consumption today, or invest today (graph 2) • I claim that this is the US in 2009 • Where on the graph do you want to be? • How many people want to be at A? o What’s wrong with A? o You’re only investing and not consuming—you will die • “It’d be nice for the World Bank to say, you guys gotta increase investment. However, you may have people who cannot eat at that choice.” • The PPF tells what society CAN DO • Does not talk about DEMAND!!! • At a certain time, we might want more roses, at another point, we will want more guns • We we CAN, not what we WANT • “What are most people doing right now given the state of the world?” o We are refraining from consumption o People are buying less o When we save, it causes big problems o For society purposes, we need the consumer to spend A Big Dilemma Example 3- iPod Shuffle • “I am selling the shuffle for 1000 bucks” • the shuffle has answers to the midterms and problem sets • “Rational Consumers” • Buy low, sell high o $1000 – 18 o $500 – 40 o $ 200 – 100 o $ 100 – 180 o $ 10 – 220 • Law of Demand- price and quantity are inversely related • Demand curve is downward sloping • Quantity goes on the x, price goes on the y Example 4- Everyone has the iPod shuffle, Gulati wants to buy • At 10 dollars, three people are selling • At 100 dollars, a bunch of people are selling • At 500, much more • At 1000, everyone • Supply curve is upward sloping...
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This note was uploaded on 05/05/2009 for the course ECON Principles taught by Professor Gulati during the Spring '09 term at Columbia.

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Principles of Economics - Principles of Economics 07:58:00...

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