ARE201Lecture1Notes

ARE201Lecture1Notes - Lecture 1: What Is Economics? I. The...

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Lecture 1: What Is Economics? I. The Economic Problem: There are scarce resources but unlimited potential uses of those resources. This scarcity forces tradeoffs between resource use. Who is to decide how to allocate scarce resources? Who decides what is produced and who gets what? Alternatives: Command Economy: A central authority decides what is produced and who gets what. Market, or Price Economy: Relies on individual self-interest to decide how resources are used. 1. Prices are attached to alternative uses, communicating their value, and these prices guide resource allocation in a totally uncoordinated, decentralized way; the "invisible hand". Prices are a "signal". 2. Incentives are key. If a business can make a profit selling something, they'll do it. And, if they can make more profit, they'll want to do more. 3. Conversely, the higher the price of something, the more costly it is for buyers, so buyers will want to use less and conserve. Example 1: Food, housing, and cars are needed to live and function in today's society. But the government (central authority) doesn't control the production of these vital products. Instead, farmers produce food, builders construct houses, and auto companies make cars because they earn profits by doing so. And the more profit they make, the more they'll want to produce. Example 2:
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ARE201Lecture1Notes - Lecture 1: What Is Economics? I. The...

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