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E251.F11.W02.D S .Clsnts

E251.F11.W02.D S .Clsnts - ECON 251 Fall 2011 Week 02...

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ECON 251 Fall 2011, Week 02: Classnotes August 22-25, 2011. Review : Economic competition : the process of exchange in which buyers compete with each other for the goods produced by offering dollars, and sellers of goods compete with each other for the dollars by offering goods for exchange. Circular Flow Diagram of the Economy: Shows the two economic agents; Households (max. utility) interact with Business Firms (max. π ) in three forms of markets, Resource markets, Product markets and Credit Markets (exchange of the use of money over time) The Circular Flow diagram of an Exchange Economy: Role of Money : Money is defined as the amount of currency in circulation plus the amount of checkable deposits . Money plays a key role in an exchange system as one half of each exchange. New: 1.The Market Forces of Demand and Supply ( Chapter 2) The Study of Markets is the study of the interaction of Buyers and Sellers. Before studying the interaction it is best to focus on the behavior of each group, and observe the factors that affect choices. Ceteris Paribus : We want to isolate separate things that affect a decision maker, so we look at one factor at a time, employing the assumption of Ceteris Paribus : All other things held equal . Product Markets FIRMS HOUSEHOLDS Resource Markets $'s $'s Revenue $'s Income $'s Goods & Services Goods & Services Resources Inputs Credit Markets
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A. Buyers: Demand : We have limited resources, and unlimited wants so we have to make choices about which goods to acquire and how much of each. Our choices depend on how much we value different goods.
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