Lecture Notes I

Lecture Notes I - Pound 1 Seth Pound Ibrahim Bayaan ECON...

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Pound 1 Seth Pound Ibrahim Bayaan ECON 2106 B 24 Aug 2006 Lecture Notes Economics => Scarcity How people make choices to use scarce resources People’s response to incentives o What, how, and for whom are goods produced? Labor, natural resources (land), capital, and entrepreneurship o Self-interest vs. Social-interest Opportunity Cost o Value of the highest valued alternative that you gave up Marginal Analysis Positive Economics o “What is” o Observation o Building a model o Testing the model Normative Economics o “What ought to be” Problems o Cause and effect o Fallacy of composition o Post Hoc Production Possibilities o Production of good and services is constrained by resources o Guns and Butter problem/example o Production Possibility Points Inefficient Falls inside curve Efficient Falls on curve Unattainable Falls above/outside curve o Line is curved because of increasing opportunity costs As you produce more of a good the cost in terms of the other increases
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Pound 2 Seth Pound Ibrahim Bayaan ECON 2106 B 31 Aug 2006 Lecture Notes Coordination o Firms Take factors of production to produce goods and services o Markets Any arrangement that allows buyers and sellers to exchange info and do business Market for goods and services Market for factors of production o Property Rights Factors of Production Income Households Firms -Land (Natural Resources) -Produce Goods and Services -Labor -Capital -Entrepreneurship Revenue Goods and Services Competitive Markets o Many buyers and sellers No individual can influence the price Money Price vs. Relative Price o Money Price of One Good/Money Price of Another o Opportunity Cost Demand o Want it o Afford it o Plan to buy it Quantity Demanded o Amount of a good or service that people plan on buying over a period of time Law of Demand o The higher the price the less demanded; the lower the price the more demanded – all things equal o “All other things equal the higher the price the lower the quantity demanded”
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Pound 3 Why?
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Lecture Notes I - Pound 1 Seth Pound Ibrahim Bayaan ECON...

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