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econ 1 lecture 1

econ 1 lecture 1 - INTRODUCTION(Reading-Chs 1 2 3 and 4...

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INTRODUCTION (Reading-Chs 1, 2, 3 and 4 Read 1 and 2 quickly. Three Broad Issues: I Economics as a way of viewing and understanding the world-- MICRO vs MACRO. II Economics as a way of thinking (methodology)--POSITIVE vs NORMATIVE///MODEL BUILDING, ABSTRACTION, PREDICTION. III The Economy as a "social institution"--the proper role for VOLUNTARY ACTIONS (via MARKETS) vs. COMPULSION (vis GOVERNMENT)...on micro level, on macro level, issue is growth and stability I MICRO VS MACRO MICRO as the study of individuals (units): -- firms /private and public--buyers of services/sellers of goods, usually through the market -- households --buyers of goods/seller of services each of these ACTORS have GOALS, they live in an ENVIRONMENT, and if we know these, we can predict OUTCOMES
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GOALS ALL UNITS/FIRMS AND HOUSE HOLDS SEEK TO MAXIMIZE SOMETHING: --private firms profits (most private firms are for profit , but non- profit sector non trivial) --public firms--major dispute in the literature/gets into the theory of --bureaucracy...budget maximization and vote maximization are assumptions of "neo-classical" economists----more liberal/socialist/Marxist views would see "public welfare" as the objective vs "legitimization." --individual (usually means "household")--maximizes happiness/utility/well- being. -- Neo-classical assumption of self-interest, i.e., the typical individual is neither benevolent nor malevolent, just selfish. --Liberals see more socially redeeming motives operative. ENVIRONMENT ALL UNITS OPERATE IN A WORLD OF CONSTRAINTS/ I.E., for the firm constraints include --the prices paid for factors of production, --and MARKET STRUCTURE (from competition to monopoly) for the individual, --it s prices for consumption goods and service --payment/wages and salaries/dependent on ability-market structure- institutional factors (race- sex----)
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MACRO as the study of AGGREGATES-the functioning of the "entire economy." Versus micro UNITS. E.G.
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