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Econ 001 Week 1 notes

by: Chiang Notetaker

Econ 001 Week 1 notes Econ 001

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These notes cover the first lecture of Econ 001, mainly the ten principles of economics.
Introduction to Economics
Kurt E Schnier
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This 3 page Class Notes was uploaded by Chiang Notetaker on Saturday August 27, 2016. The Class Notes belongs to Econ 001 at University of California - Merced taught by Kurt E Schnier in Fall 2016. Since its upload, it has received 19 views.

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Date Created: 08/27/16
Econ 001 Chapter 1 Lecture – 8/25/16 (Week 1) Economics is the study of how societies allocate scarce resources, through the choices made by households and firms. Scarcity is the idea that all resources are limited and all the goods and resources that people want to have cannot be produced. There are ten principles of economics, separated into 3 categories. Four principles are about how people make decisions; three are about how people interact; and three are about how the economy as a whole works. A. How people make decisions 1. People face trade-offs. Achieving any goal requires giving up on another goal. Examples include choosing to study for one class instead of studying for another class. Societies often have to choose between “guns” and “butter”, or choosing between national defense and consumer goods. Another choice societies face would be between “efficiency” and “equality”, or having the largest production versus equal distribution of resources. 2. The cost of something is what you give up to get it. This is expressed in the idea of an opportunity cost, such as giving up on the ability to work a full-time job in order to go to college. 3. Rational people think on the margin. Normally, people are assumed to be rational by economists. Rational people purposefully attempt to do the best they can to achieve their objectives given opportunities. Rational people make decisions based on marginal changes, or small changes to an existing plan. Instead of choosing to not study or study nonstop, they would decide whether to study another hour past their normal schedule. 4. People respond to incentives. Something that induces people to act, whether it be a punishment or a reward, is an incentive. Higher prices on a good can induce consumers to buy less, and producers to produce more. Government policies often use incentives, such as taxes or subsidies, to shape desirable outcomes, such as reduced gasoline consumption. B. How people interact 5. Trade can make everyone better off. Through trade, countries and households can acquire things that they can’t produce themselves, or that others can produce more efficiently. This allows for specialization, where a person or country focuses on an area of the economy that they become more efficient at. 6. Markets are usually a good way to organize economic activity. In a market economy, there is no government planning that decides what economic activity should be focused on. Instead, individual households and firms make independent decisions based on self- interest. Such an economy works because prices reflect the value of products and the cost it took to make them. 7. Governments can sometimes improve market outcomes. The most important thing governments do to help market economies is enforcing property rights, or the ability to own and exercise control over a resource. Without property rights, producers would not produce goods if those goods could be stolen. Market failures occur when the market does not allocate resources efficiently. This can happen through externalities, or outcomes that affect the well-being of bystanders; and market power, where a single person or firm has too much influence over prices due to a lack of competition. C. How the economy as a whole works. 8. A country’s standard of living depends on its ability to produce goods and services. The quantity of goods and services produced per unit of labor input in a country is its productivity. Countries with higher productivity have a higher standard of living, as the people can afford more and better goods and services. 9. Prices rise when the government prints too much money. A rise in general prices for all goods and services is called inflation. An overproduction of money decreases its value, meaning the same amount of money buys less products. Keeping inflation low is considered a goal for most governments, due to the costs is places on society. 10.Society faces a short-run trade-off between inflation and unemployment. By increasing the money supply, the government can increase spending, which in turn increases employment as firms hire more people to produce more goods. However, inflation also occurs when more money is printed.


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