Econ 501notes

ECON 501

Text Notes

Chapter 1: Economics-Foundations and Models

-We use economics to answer questions such as the following:

~How are the prices of goods and services determined?

~How does pollution affect the economy, and how should government policy deal with these effects?

~Why do firms engage in international trade, and how do government policies affect international trade?

~Why does government control the prices of some goods and services, and what are the effects of those controls?

*Scarcity: a situation in which unlimited wants exceed the limited resources available to fulfill those wants

*Economics: the study of the choices people make to attain their goals, given their scarce resources

-There are 3 important economic ideas:

1. People are rational

2. People respond to incentives

3. Optimal decisions are made at the margin

-There are 3 fundamental questions that any economy must answer:

1. What goods and services will be produced?

2. How will the goods and services be produced?

3. Who will receive the goods and services produced?

*Economic Models: a simplified version of reality used to analyze real-world economic situations

[1.1-3 Key Economic Ideas]

-As you try to achieve your goals, whether they involve buying a new compute ror finding a part-time job, you will interact with other people in markets

*Market: a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade

-Most of economics involves analyzing what happens in markets

{People Are Rational}

-Economists generally assume that people are rational

-Economists assume that consumers and firms use all available information as they act to achieve their goals

-Rational individuals weigh the benefits and costs of each action, and the choose an action only if the benefits outweigh the costs

{People Respond to Economic Incentives}

-Human beings act from a variety of emotions, including religious belief,...