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Econ 201 - Econ 201 Motivation and the economic problem 1...

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Econ 201 1/15/08 Motivation and the economic problem 1. The organization of an economy: a. Three questions for every economy: -what should we produce? -how should we produce? -for whom should we produce? b. Socialism, feudalism, mercantilism, c. Capitalism: An economic system based on private property and the market in which, in principle individuals decided how, what and for whom to produce. d. Generally economics is built on premise that humans are naturally selfish. 2. Prices and the markets: a market needs two sides, buyers and sellers. Markets determine price and therefore certain behaviors. a. What is price? A price is a ratio at which two goods may be exchanged in a market. b. As such, we must understand that it is impossible to change just one price: whenever you change the dollar-price of a good/service/behavior, we change it not only in terms of all other things dollars will buy. 3. Theory: a. An explanation for some phenomenon that is based on observation, experimentation, and reasoning. b. A theory is a logical explanation or a testable model of the manner in which the phenomena interact c. A theory is capable of being tested through experimentation or otherwise falsified through empirical observation.
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