Lecture%201 - Econ 208 lecture 1 page 1 Principles of...

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Econ 208 lecture 1 page 1 Principles of Microeconomics Administration o Course is lectures; R&L are supplementary. o Frank’s Falling Behind required reading o 100 percent final but practice quizzes. Finals to combine multiple-choice and essays. What Economics is all about o Markets : What they are, how they work, and what they mean. What they are: Does anyone know? How would you know a market if you saw one? Is it a geographical place? Like the Atwater Market? Is the Atwater Market at 3:00 a.m. still a market? What defines a market from a non-market? Or is it just an ampty lot? How does a daily vegetable market like the Atwater differ from, say, the market for roofers or bricklayers? How does it differ from a flea market? Do people have to be physically present for there to be a market? Is it defined by what people do? What do people ‘do’ in markets? They buy and sell things. Is a newspaper or a soft-drink vending machine a market? There’s only one person – the buyer; the other side is a machine. In what sense if any is does the encounter between man and machine constitute a ‘market’?
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Econ 208 lecture 1 page 2 Note that defining markets as buying and selling begs the question exactly what is being bought and sold. What’s a price? What exactly do we mean by price? Price is the amount of money you pay for a unit of a good you buy. How does this work for lemonade? Note that this definition implicitly defines price in terms of two quantities: the quanity of money you pay and the quantity of goods you receive for your money. This seems self-evident. Like much else in economics, it isn’t. Let’s think about it a bit. Price = $/unit. Where do the $ come from? What do they represent? When you pay over $ to a vendor what happens? You get the good the vendor gets your $. Can you use the same $ again to buy something else? No. The vendor has it. So the $ represents the implicit sacrifice of anything else you could have bought with that $. We call that implicit sacrifice the ‘ opportunity cost ’. This is one of a handful of fundamental concepts in economics. It seems simple, but in application can be very complicated. Your ability as an economist rests mainly on your ability correctly to identify the opportunity cost of any given action. Let’s suppose for the moment that the opportunity cost is measured simply by the price. If you pay $10 to see a movie, you can’t spend that $10 on anything else. Another way of expressing the principle is ‘you can’t spend the same dollar twice.’ Obviously
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Econ 208 lecture 1 page 3 more expensive items have higher opportunity costs.
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