ECONOMICS NOTES- WEEK 1 ECONOMICS

ECONOMICS NOTESWEEK 1 ECONOMICS- is a social science that focuses on: –how societies react to scarcity and solve economic questions –study of markets (demand and supply) –incentives –choices –allocation of scarce resources –the distribution of incomes and wealth across competing groups and nations Economics is about making RATIONAL decisions!! ECONOMICS in the Environment: -Incentives to pollute, Common access, Externalities, Carbon taxes, direct controls. ECONOMICS in Business. -Competition, profit/loss etc. ECONOMICS of Trade Political stability, relationships between countries, creates wealth The Main AIM of ECONOMICS is human welfare!! CREATIVE DESTRUCTION has changed many industries due to advancements in technology such as Uber replacing Cabs and Amazon becoming a replacement for supermarkets. Why does the baker sell bread? Why do you pay for services/products. -The bakers main focus is to make a profit, to make money. They value the money that they receive more than they value the bread they’ve made. There main focus is providing a product that they well seek value in return. -In terms of the consumer, they pay because they value the gains from the trade more than they value there money. People are motivated by there own rational self-interest.

IMPORTANT! - Prices reflect scarcity of supply relative to intensity of consumers’ demand.

TWO SIDES TO RATIONAL SELF-INTEREST Exchange theory (covered in MAE101) – Gains from production and trade Investment, exchange, ingenuity & industry • See Gans et al textbook • Conflict theory (covered elsewhere but a little bit in MAE101) – Gains from conflict War, litigation, strikes, crime, rent-seeking & politics