Chapters 1 and 2

Chapters 1 and 2 - Chapter 1 The Allocation of Scarce...

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Chapter 1 The Allocation of Scarce Resources What is made? How are they made? Who gets what’s made? Answer: Markets and Prices Prices provide signals as to the value of the product to consumers and firms. Also, they provide incentives. (i.e. Taxes on cigarettes is an incentive to reduce or stop smoking.) Building various models helps us to understand and analyze the economy. It’s too complicated to understand without them. Models are simplified versions of reality. Positive vs. Normative economics. In this class, we’ll be more interested in Positive economics. It is the economics that tests and explains models (i.e. The moon is green. Well, look up at the moon, it’s yellow. It’s not green. Normative tests a “should” or “ought” statements. There is a difference between efficiency and fairness. (Giving water away after Katrina would be fair, but selling it would be efficient.) Those who value the product the most get it first. Those who value it less get it later, if it is still available.
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Chapters 1 and 2 - Chapter 1 The Allocation of Scarce...

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