ECON 1900 Notes - Day 1 PDF

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Day 1...

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Econ Notes  1/13/20 Chapter 1: What is Economics? ● Economic Activity- the amount of buying and selling goes on in econ. Overtime ● Economy- prod. And the exchange of activities ● Economic Prob ○ What goods and services? ○ How should be produced? ○ Who should get them? ● Solution ○ Land- all natural resources ○ Labour- a human effort that goes into production (both mental and physical) ○ Capital- equipment and structures ● Scarcity- limited nature of society’s resources ● Economics-study of how society manages its scarce resources ● Equity-property of distributing economic prosperity fairly among society ● Opportunity cost- what is sacrificed ● Marginal changes- small incremental adjustments to a plan of action ● Economic agents- an individual, firm, agent that has an impact on the economy ● Economic system- way resources organized ● Capitalist economic system- relies on private ownership and exchanging of goods through price mechanism ● Market economy- addressed 3 key Q’s of econ. Prob by allocating resources through decentralized decisions ● Planned economic system- economic activity organized by central planners ● Adam Smith ○ Inquiry into nature and causes of wealth of nations  in 1776 ○ Participants in economy motivated by invisible hand and self interest into promoting general economic well-being ● Market failure- scarce resources not allocated to most effective use ● Externality- cost/benefit of person’s decision on well-being of bystander which decision maker does not take into account ● Market power- ability of single economic agent to have substantial influence on market pieces ● Microeconomics- study of how households/firms make decisions and how interact

● Macroeconomics- study of economy-wide phenomena (inflation, unemployment, economic growth) ● Economic growth- ● Productivity = the ultimate source of living standards ● Money growth = the ultimate source of inflation ● Society faces short-run trade-off bw inflation and unemployment (Phillips curve)  1/15/20 Review Principles: ● 1st trade-off ○ Food V clothing ○ Leisure time V work ○ Efficiency (gets most out of scarce) V equity (distributed fairly) ● 2nd opportunity cost ● 3rd thinking at the margin- thinking ab cost and benefits, make decisions incrementally - Before industrial rev. Things were pretty simple. W/ industrial rev. And trade things got more complicated - Value dependent on diff needs and values ● 4th people respond to incentives ○ Markets, public policies (both incentives and disincentives) ● 5th trade can make everyone better off ○ Specialize is best way, but transition probs. ■ With change, some people left out, not perfect, average terms ● 6th market economy ○ Households ( what to buy, who to work) ○ Firms (who to hire what to produce) ○ Pure market economy- no gov. Involved ○ Centrally planned economy-gov. Guides ■ Failed bc did not allow gov to work ● 7th gov can improve the economy, market ○ Adam Smith and invisible hand ○ When focus on own interest everyone in end are better off ● 8th countries standard of living depends on its ability to produce goods and services ○ productivity ● 9th inflation caused from money growth

● 10th society faces short-run tradeoff bw inflation and unemployment ○ Inversely prop. ○ Phillips curve      Chapter 2...