Topic 1 Lecture Notes

Topic 1 Lecture Notes - Econ 1 ELEMENTS OF ECONOMICS...

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Econ 1 – ELEMENTS OF ECONOMICS LECTURE NOTES Foster, UCSD October 09 TOPIC 1 – INTRODUCTION TO ECONOMICS A. Terminology 1. Definitions: a) What is Economics? 1) Study of production and distribution of goods and services, and of the distribution and spending of incomes earned in that production. 2) Study of allocating scarce (limited) resources among alternative uses so as to satisfy unlimited human wants. 3) Microeconomics 4) Macroeconomics b) Positive vs. normative issues in economics. c) Logical fallacies. 1) Post hoc ergo propter hoc – “after this, therefore because of this.” 2) Fallacy of composition – what is true for an individual is also true for a group. d) Ceteris paribus – “all else held constant.” e) Commodity -- a good (tangible) or service (intangible). 1) Economic commodities -- produced by human effort using scarce resources. 2) Free goods -- so abundant in nature that no one will pay for more per time period. f) Market – an institution, place or arrangement for the exchange of commodities for money payment or for each other (barter). g) Stocks and flows. 1) Flow -- a quantity measured per period of time. 2) Stock -- a quantity measured at an instant of time. 3) Examples -- water tank; investment, depreciation and stock of physical capital. 2. Scarcity, Choice, and Opportunity Cost: a) Scarcity -- the "fundamental economic problem." 1) Most things we want have to be produced using energy from sun, material from earth's crust, and human effort. These resources are scarce in that there is not an unlimited amount available; only a finite amount can be extracted/time period. 2) The problem is that what we have is limited, but what we want is not! Thus, we must choose what to have now, what to have later, and what to forego altogether. SCARCITY CHOICE COST
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Ec 1 INTRODUCTION p. 2 b) Rational Choice -- the "fundamental economic activity." 1) Because of scarcity, we choose from a list of alternatives, trying to pick the best one. 2) A choice is rational if, given information available at the time, the alternative chosen is expected to yield the maximum benefit. c) Opportunity cost – the “third inevitable.” 1) The opportunity cost of a choice or decision is the benefit associated with the next best alternative. This is what we give up to get the benefit of our best choice. 2) Examples -- alarm, belt, TANSTAAFL.
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Ec 1 INTRODUCTION p. 3 B. Resources, Markets and the Circular Flow 1. Classification of Resources (Inputs, Factors of Production): a) Land. 1) Land area plus natural resources (renewable and exhaustible). 2) Source is nature (earth and sun). b) Labor. 1) Workers (skilled, unskilled, professional). 2) Source is productive effort by current working population. 3) Entrepreneur -- a special kind of labor which takes risks to organize production. Source is largely cultural.
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Topic 1 Lecture Notes - Econ 1 ELEMENTS OF ECONOMICS...

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