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Econ 103 Week 1 + 2 notes

by: Micah Hoffbauer

Econ 103 Week 1 + 2 notes ECON 103

Marketplace > George Mason University > Economics > ECON 103 > Econ 103 Week 1 2 notes
Micah Hoffbauer

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About this Document

Notes cover what he's talked about in the last 2 weeks
Thomas Rustici
Class Notes
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This 4 page Class Notes was uploaded by Micah Hoffbauer on Friday September 16, 2016. The Class Notes belongs to ECON 103 at George Mason University taught by Thomas Rustici in Fall 2016. Since its upload, it has received 5 views. For similar materials see INTRODUCTION TO MICROECONOMICS in Economics at George Mason University.


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Date Created: 09/16/16
Economics: the science of purposeful human action & the unintended consequences of that action; the science of Spontaneous Order (human action not desire or intention) Life depends on barter 1 world: Mind (values, needs, wants) 2ndworld: social order, economy, market, institution (everything outside of your mind) Economic science is a bridge from world 1 to world 2 Microeconomics: price theory Macroeconomics: totality, coordination of the entire system Economics try to answer not why, but “given you are who you are” Spontaneous Orders 1. The price system (information signals)*** 2. Money (medium of exchange)*** a. Solves problem of double coincidences 3. Banks (financial intermediaries)*** 4. Future’s Markets (speculators) a. shock absorbers for the economy; stabilize economy b. Functionally the most important thing for life c. Pull out of spot pricing 5. Stock & Bond Markets a. Pension funds, retirement funds wall street b. 2 types i. Primary: initial public offerings ii. Secondary: new York stock exchange (buying & reselling stock/transfer of ownership), i.e. CHARLES SCHWABB 1. Without secondary you don’t have primary 6. Accounting Systems (information) Value of Theory  Theory is an abstraction away from reality  Theory is like a roadmap; doesn’t look exactly like reality something corresponds with reality  Facts are organized by theory in a cause & effect sequence; x causes y o Relevant facts are the cause & effect 1. Future Prediction a. Asking a guess question; unable to be predicted 2. Normative vs Positive Questions a. “what should be” vs “what is…/cause and effect” i. Science can answer cause & effect questions but not normative questions b. Expect disagreement on normative questions Assumptions 1. Scarcity** a. Confucius, “man with open mouth waits a long time for roast duck to fly in” need to do something to get something b. Mother nature imposes scarcity c. Central proposition to economics d. NEVER confuse scarcity with shortages; surplus IS NOT free goods 2. Only individuals: methodological individualism** a. Choice maker is unit of analysis b. Economy abstract label for decisions made by people 3. Rational choice** a. Purposes, intent, aim 4. Unlimited wants** a. Greedy greedy greedy unlimited imagination due to scarcity b. Mother Theresa: value of other people= unlimited amount to do for others c. First three cause unlimited wants History of Price Theory 1. Aristotle 300 BC(ish): coined economics a. Used to mean household budgeting; managing affairs in your home b. “Equality of Exchange” prices are what they are because people trade equal values i. Equal values= no trade is possible ii. People make trades due to unequal values 1. Differences cause movement/dynamics iii. Trade= means to an end iv. No answer for where price comes from c. Person A i. Apple ii. Orange d. Person B i. Apple ii. Orange e. Value equally, A is on the short side of the market f. Person A i. Apple ii. Orange g. Person B i. Orange ii. Apple h. Have reverse values, trade is possible 2. Scholastics 1300 AD(ish): St. Thomas Aquinas a. “The Just-Price Doctrine”: normative theory to get to a positive result i. No such thing as a just-price; need to be explained ii. Took 300 years to see that there is no such thing as a fair/just price everyone has different opinions on pricing from seller vs buyer 3. Mercantilism 1500-1776: T. Mun, J. Law, J. Colbert (physiocrats) a. 8 major mistakes i. They picked the prices ii. “money” is nominal economic variable 1. Thought money made a country rich but really it’s goods n services iii. Thought trade was a zero-sum game 1. “In trade someone was better off, someone was worse off” false iv. The economy is rich + prosperous, only the people are poor and suffering 4. Classical School 1776: Adam Smith a. The Wealth of Nations i. Demolition on mercantilism 1. Wrong on everything. Nothing correct on the mercantilist school of thought ii. Laissez-faire onto something, but theory of price is wrong (physiocrats) iii. Says greed drives the world b. Shrewd realist c. Says market is mutual seduction 4 things wrong with picture 1. Prices 2. Logic of an infinite regress in value 3. Everything was first a free gift of zero-price 4. Labor is NOT the source of all value 5. Value is in the object  Price is what it is because of historical cost of production Labor is not the source of labor, the value is in the mind of the subject 5. Water diamonds paradox of value a. Marginalism: the next unit i. where the margin cuts into your values determines the price b. menger: Chapter 1 i. “The General Theory of the Good” 1. Human need 2. Properties of the object that satisfy our needs 3. Knowledge of the causal connection between 1 & 2 4. Sufficient command 5. Scarcity 6. Laws of factor pricing a. The goods value of goods of higher order is dependent on command of corresponding complimentary goods (horizontal coordination of value) b. The goods c. The goods-value of the higher order stages are derived (derived demand) i. Reverses the direction of causation of value d. The goods-value of generalized factors of production are not exclusively dependent on satisfying any one particular human need Shortages & surpluses are price phenomenon


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