Lecture 01 - Introduction to Economics Lecture 1:...

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© Gustavo Indart Slide 1 ECO 100Y Introduction to Economics Lecture 1: Introduction
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© Gustavo Indart Slide 2 What is Economics? ± Economics is the science that studies how resources are used in order to satisfy human wants or needs ± Resources are characterized for being scarce and human wants for being unlimited ± There are 3 main types of resources: ¾ natural resources (land, minerals, water, etc.) ¾ human resources (mental and physical) ¾ capital resources (tools, machinery, buildings, etc.)
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© Gustavo Indart Slide 3 Commodities ± Resources are used to produce commodities (i.e., goods and services sold in the market) ± Resources used in production are called factors of production ± Commodities are produced in order to satisfy human needs ± Human needs are satisfied through the consumption of commodities
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© Gustavo Indart Slide 4 Economic Agents ± Society as producer consists of firms ¾ A firm employs factors of production in order to produce commodities that it sells to other firms, to households, or to government ± Society as consumer consists of households ¾ A household consists of all the people living under one roof and who make joint financial decisions
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© Gustavo Indart Slide 5 Underlying Behavioural Assumptions ± Producers try to maximize profits ± Consumers try to maximize their degree of satisfaction or utility
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© Gustavo Indart Slide 6 Circular Flow of Expenditures and Income ± Commodities and factors of production are bought and sold in the market ± Firms supply commodities in the commodity markets and demand factors of production in the factor markets ± Households supply factors of production in the factor markets , and demand commodities in the commodity markets
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© Gustavo Indart Slide 7 Flow of Expenditure and Income FACTOR MARKETS GOODS MARKETS FIRMS HOUSEHOLDS Labour, land & capital Labour, land & capital Goods & services Goods & services Wages, rent & interest Expenditures on goods & services
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© Gustavo Indart Slide 8 Microeconomics and Macroeconomics ± Microeconomics studies the decisions of individual households and firms (e.g., determination of the price for apples in the market for apples) ± Macroeconomics studies the economy as a whole (e.g., the determination of the price level for the economy as a whole)
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© Gustavo Indart Slide 9 Economic Models ± Economists develop economic theories to explain how the economy works ± Economists develop economic theories by building and testing economic models ± An economic model is a simplification of the real world ± An economic model has two components: assumptions and implications
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© Gustavo Indart Slide 10 Assumptions and Implications ± Assumptions form the foundations on which the model is built ± Assumptions allow for a simplification
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This note was uploaded on 01/16/2011 for the course ECO ECO100 taught by Professor Inheart during the Fall '09 term at University of Toronto- Toronto.

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Lecture 01 - Introduction to Economics Lecture 1:...

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