ECO 2013, week 2 notes
ECO 2013, week 2 notes Eco2013
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This 6 page Class Notes was uploaded by Lauren Carstens on Friday January 22, 2016. The Class Notes belongs to Eco2013 at Florida State University taught by Joan Corey in Spring 2016. Since its upload, it has received 89 views. For similar materials see Principles of Macroeconomics in Economcs at Florida State University.
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Date Created: 01/22/16
Macroeconomics Chapter 2: The tools of the Economist Trade Creates Value Yes this is true, but only if it is voluntary trade Because the value of goods is subjective, voluntary trade creates value o Ex: The candy game (trading first with your group and then with the whole class to get the most utility out of their candy) the candy didn’t change at all, but what did change is whose hand it was in o Ex: Countries across the world engaging in trade: the more barriers you put in for trade, the less trade value will increase When individuals engage in voluntary exchange, both parties are made better of The channeling of goods and resources to those who value them most increases the wealth created by a society’s resources Creation of Wealth The process by which some people become rich will make everybody richer (as long as it is through voluntary exchange) Don’t hate the rich for being rich, only hate them if how they got rich is through stealing or coercing money o Most rich people have become rich through voluntary exchange Ex: Henry Ford: invented a new way of producing an automobile (assembly line) He became rich by making everyone better of by making the production of automobiles cheaper, which made the cars cheaper, which benefited everyone. Both sides are now better of. The word is a better place as long as the wealthy are creating their wealth through voluntary exchange. Importance of Private Property Rights Private Property rights involve: 1. The right to exclusive use of the property. a. You have the right to deny or exclude other people from using it. b. Ex: Someone can’t just come up and steal our pen without your consent. 2. Legal protection against invasion from other individuals. a. Ex: If someone does steal your pen, in an ideal world, you can call the police and they will come get your pen back for you. 3. The right to sell, transfer, exchange or mortgage the property. a. You can sell the pen to someone else if you want to. 4 Incentives of Having Property Rights 1. Incentive to use resources in ways that are considered beneficial to others a. You don’t have to, but you can use the property to help others. b. Ex: If you had a big, empty lot in the middle of campus, you can help everyone by building a parking garage. i. You will make the most money of of this because it is what everyone else wants most at this time. ii. Then, you can charge them for parking spaces as well. iii. Owner’s bear the cost of ignoring the wishes of others 1. Ex: Reselling your textbook: People don’t want to buy overused/ dirty books, so if you treat your textbook badly, you will pay the price by not being able to resell it after the course. 2. Private owners have an incentive to care for and manage what they own a. People tend to take much better care of things that are solely theirs than they would treat something they share with other people b. Ex: Communal refrigerator vs. Your own refrigerator i. You have a much bigger incentive to clean your own refrigerator because it only holds your own food. You don’t clean a communal refrigerator because you don’t know what food is whose and it doesn’t efect you too much. ii. Joab leaving an open can of tuna fish in the communal economics fridge for a year and a half to see if someone would do something about it 3. Private owners have an incentive to conserve for the future a. Ex: Two houses share a reserve of oil i. One neighbor decides to save the oil for a colder day, but the other neighbor decides to turn on the heat despite it not being too cold. The first neighbor then turns on the heat thinking that any oil he doesn’t use, his neighbor will. Now there is no more oil for when it actually does get cold because they just don’t want the other to use everything. ii. The better choice is for them to split the oil and then each have their own stock of oil to use when they want to without being concerned when the other will be using it. b. Ex: Endangered Species (Elephants) i. In Kenya, they made the killing of elephants and the harvesting of their ivory tusks illegal to try and stop it. The price of ivory increases. Increased the benefit of poaching, which increased the actual killing of elephants. ii. In Zimbabwe and Batswana, they sold expensive hunting licenses for the specific elephants that were most likely to die soon anyways. They established private property rights over the elephants by saying the elephants were the people’s. People then had more incentive to keep them alive because they were their own. Conserving for the future 4. Private owners have an incentive to make sure their property does not damage your property a. If your property ends up harming someone else’s property, you are responsible. b. Ex: If you have a tree leaning over into someone else’s house, you will do whatever you can to make sure it does not damage that person’s house so that you can not be held liable. c. Ex: Why you keep your dog on a leash Property Rights and Development Lack of property rights lack of economic progress When property rights are not easily identifiable or not present at all, you will see a lot less growth in that society Production Possibilities Curve (PPC) PPC: outlines all possible combinations of total output that could be produced within an economy, assuming: 1. The amount of productive resources is fixed 2. The amount of technical knowledge is given a. As new technology is invented, the curve is shifted 3. The use of resources is full and efficient Food and Clothing Production a. Not wasting any resources in any way (time) Y A F E Efficient points: A, B, C Inefficient point: D Unobtainable point: D C B X As we move from A F: -1/+1 = -1 Food You loose one food to gain one clothing Usually, your opportunity cost increases as x or y decreases. Another Example: 4 factors that shift the PPC A change that increases our ability to produce Y, but does not All change our production of X possible, A change that decreases our ability to produce Y, but does not but not change our production of X what A change that increases our ability to produce X, but doesn’t we’re change our ability to produce Y focusing A change that decreases our ability to produce X, but doesn’t change our ability to produce Y 1. A change in the economy’s resource base a. Investment: the purchase, construction or development of resources b. However, investment requires us to give up consumption goods c. Ex: Consider the two PPCs
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