Notesale: Turn your study into money

Document Preview

Extracts from the notes are below, to see the PDF you'll receive please use the links above

---

N
...
Andreea Chiritescu
Eastern Illinois University

© 2021 Cengage Learning®
...


1

IN THIS LECTURE
• What kinds of questions does economics
address?
• What are the principles of how people
make decisions?
• What are the principles of how people
interact?
• What are the principles of how the
economy as a whole works?
© 2021 Cengage Learning®
...


2

Defining Economics
Resources are scarce
• Scarcity: the limited nature of society’s
resources
– Society has limited resources and cannot
produce all the goods and services people wish
to have
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...

– Going to a party the night before an exam
• Less time for studying

– Having more money to buy stuff
• Working longer hours, less time for leisure

– Protecting the environment
• Resources could be used to produce

consumer goods
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...
You pay $12/month for access to Netflix,
regardless of how many movies or TV shows
you watch in a month
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...
Netflix:
– Marginal benefit of watching one more movie:
• The enjoyment you get from watching the
movie
– Marginal cost of watching one more movie:
• Monetary cost = $0
• Opportunity cost of time
– Decision: If the marginal benefit exceeds the
marginal cost, watch the movie
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...

– Sellers produce more doughnuts
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...

• How do consumers respond?
– Drive smaller or more fuel-efficient cars
– Carpool
– Use public transportation
– Move closer to work

© 2021 Cengage Learning®
...


14

How People Interact
Principle 5: Trade can make everyone
better off
...

Principle 7: Governments can sometimes
improve market outcomes
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...

• Countries benefit from trade:
– Allows countries to specialize in what they
do best
– Enjoy a greater variety of goods and
services

© 2021 Cengage Learning®
...


16

Principle 6: Markets Are Usually a Good Way to
Organize Economic Activity – 1

• Market
– A group of buyers and sellers (need not
be in a single location)
• “Organize economic activity” means
determining
– What goods and services to produce
– How to produce these goods and services
– How to allocate them to their final user
© 2021 Cengage Learning®
...


17

Principle 6: Markets Are Usually a Good Way to
Organize Economic Activity – 2

• Market economy
– Allocates resources through the
decentralized decisions of many firms and
households as they interact in markets
– Proven remarkably successful in
organizing economic activity to promote
overall prosperity

© 2021 Cengage Learning®
...


18

Principle 6: Markets Are Usually a Good Way to
Organize Economic Activity – 3

• Prices:
– Determined by the interaction of buyers
and sellers
– Reflect the good’s value to buyers
– Reflect the cost of producing the good
• Adam Smith’s “invisible hand”:
– Prices guide self-interested households
and firms to make decisions that maximize
society’s economic well-being
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...

• We rely on government-provided police and
courts to enforce our rights over the things we
produce
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...

– Externality – source of market failure
• Production or consumption of a good affects

bystanders (e
...
pollution)
...
g
...

© 2021 Cengage Learning®
...


21

Principle 7: Governments Can Sometimes
Improve Market Outcomes – 3

• Government: promote equality
– Avoid disparities in economic well-being
– Use tax or welfare policies to change how
the economic “pie” is divided
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...

Principle 9: Prices rise when the
government prints too much money
...

© 2021 Cengage Learning®
...


23

Principle 8: Country’s Standard of Living Depends on Its
Ability to Produce Goods and Services – 1

• Huge variation in living standards across
countries and over time
– 2017 average income:
• $60,000 in the U
...
; $6,000 in Nigeria

– Average income in rich countries
• Is more than ten times average income in

poor countries

– The U
...
standard of living today
• Is about eight times greater than 100 years

ago
© 2021 Cengage Learning®
...


24

Principle 8: Country’s Standard of Living Depends on Its
Ability to Produce Goods and Services – 2

• Productivity: most important determinant
of living standards
– Quantity of goods and services produced
from each unit of labor input
– Depends on the equipment, skills, and
technology available to workers
• Other factors (e
...
, labor unions, competition

from abroad) have far less impact on living
standards
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...

– Other factors can make this trade-off more
or less favorable, but the trade-off is
always present
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...

• The cost of any action is measured in terms of
•
•

forgone opportunities
...

People change their behavior in response to the
incentives they face
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use
...

Markets are usually a good way of coordinating
economic activity among people
...


© 2021 Cengage Learning®
...


29

CHAPTER IN A NUTSHELL
• The economy as a whole:
• Productivity is the ultimate source of living
•
•

standards
...

Society faces a short-run trade-off between
inflation and unemployment
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use

---