365 Lecture 1--Winter 2011--student

365 Lecture 1--Winter 2011--student - Comparative Economic...

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Comparative Economic Systems Lecture 1 "Some Basics" Grand Valley State University Winter 2011 Dr. Daniel Giedeman
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The Earth at Night
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The Three Big Questions Every Society Must Answer: – What to produce? – How to produce? – For whom to produce? Economic systems have evolved to answer these questions
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Economic Systems Economic System: – "a set of institutional arrangements used to allocate scarce resources” • — Gregory et al. Comparing Economic Systems , 2004 – “a set of institutions for decision making and for the implementation of decisions concerning production, income, and consumption within a geographic area.” • — Assar Lindbeck (quoted in Gregory, 2004)
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Answering the Three Big Questions What to produce? – Society should produce each good such that the "marginal benefit" of the last good produced is equal to the "marginal cost" of the last good produced • Marginal benefit: the additional benefit that society accrues from the production (and subsequent consumption) or another unit of a particular good • Marginal cost: the additional cost that society incurs from the production of another unit of a particular good
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Answering the Three Big Questions How to produce? – Society should produce goods in the least costly manner • Costly in the sense of "opportunity costs" – Opportunity cost: The most highly valued alternative foregone when a different action/activity is chosen.
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Answering the Three Big Questions For whom to produce? – This question is the most interesting because it is normative • Normative vs. Positive Analysis – Positive analysis is concerned with "the way things are" – Normative analysis is concerned with "the way things ought to be" » Positive statements are either right or wrong » Normative statements reflect values and have no "correct" answer
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A Question To whom do you throw the life-preserver? 1) 30 year-old single female doctor who treats childhood cancer (makes $300,000) 2) 35 year-old married man with 3 kids who is a construction worker (makes $50,000) 3) 45 year-old elementary school teacher, married but no children (makes $50,000) 4) 40 year-old porno-tycoon (makes $5 million) 5) 25 year-old single woman with two kids—currently unemployed 6) 70 year-old retired grandmother (makes $0) 7) 5 year-old child (makes $0) 8) 22 year-old college student (currently makes $10,000)
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A Different Question To whom do you sell the life-preserver? 1) 30 year-old single female doctor who treats childhood cancer (makes $300,000) 2) 35 year-old married man with 3 kids who is a construction worker (makes $50,000) 3) 45 year-old elementary school teacher, married but no children (makes $50,000) 4) 40 year-old porno-tycoon (makes $5 million) 5) 25 year-old single woman with two kids—currently unemployed 6) 70 year-old retired grandmother (makes $0) 7) 5 year-old child (makes $0) 8) 22 year-old college student (currently makes $10,000)
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Another Question Which of the following people should get to live in a
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This note was uploaded on 04/05/2011 for the course ECO 365 taught by Professor Giederman during the Winter '11 term at Grand Valley State University.

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365 Lecture 1--Winter 2011--student - Comparative Economic...

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