ECON251x.F11.W02.D.S.R1

ECON251x.F11.W02.D.S.R1 - ECON 251x The functioning of...

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Unformatted text preview: ECON 251x The functioning of Markets: The interaction of buyers and sellers. (Chapter 1) Construction of Theory Abstractions Definitions Assumptions Implications Adoption of Theory Definitions Good : Anything that an individual wants to have more of, at zero price. Resource : Anything that can be used to produce goods. Assumptions Humankind has unlimited wants Our resources are limited Scarcity : Individually, and as a Society, we do not have enough resources to produce all the things we want. Implications of Scarcity Choice Economic Cost Competition Forms of Competition in Society Violence, or Threat of Violence Social/Political Economic/Market: competition based on offering the highest value in exchange. Primary Social Goal = Fairness Violence: not fair. Social political: not fair. Economic: not fair, Life is NOT FAIR !! But, the market offers the broadest and most fair system What Economics Is About Microeconomics : decisions of individuals and firms: what to buy and what to produce. Macroeconomics : the whole economic system and the role of government. Mechanisms of Choice Political : our representatives make choices Economic/market : individuals and firms make choices based on relative prices about what to produce ECONOMIC Form of Competition Economic competition: We acquire $s by producing value for others. We compete for goods by offering to trade $ dollars. Circular flow diagram: Shows the interaction of households and firms in two kinds of markets. Product Markets FIRMS HOUSEHOLD Resource Markets $'s $'s Revenue $'s Income $'s Goods & Services Goods & Services Resources Inputs Circular Flow Diagram of the Exchange Economy Credit Markets $'s $'s Circular Flow Diagram of the Exchange Economy Households : Decisions: What to sell? What to : Decisions: What to sell?...
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This note was uploaded on 02/11/2012 for the course ECON 251 at USC.

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ECON251x.F11.W02.D.S.R1 - ECON 251x The functioning of...

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