Richard Damra Thursday, January 10, 2013 Econ 1B03 Gains from ...
Richard Damra
Thursday, January 10, 2013 Econ 1B03
Gains from Trade
In a market economy, people engage in trade with each other Not every family or nation can produce everything it needs effificently We specialize in tasks we do best and trade with others for the things we need that they can provide. (division of labour) In this way, we have gains from trade
Efficiency
Efficiency: we make the best use of our resources (economic decisions) Equity: Fair distribution of resources (political decisions) Market failure: Occurs when the market fails to allocate resources efficiently. Government may intervene Externality: Impact on someone random. (ex: Guy buying tree and their neighbor gets shade). Impact of one person or firm’s actions on the well-being of a bystander Market power: ability of a single firm to unduly influence market prices eg. Monopoly. Some goods just aren’t suited for the market. Eg donor organs
The Economist’s Roles
When economists are trying to explain the world, they are scientists When economists are trying to change the world, they are policy advisors.
Positive vs Normative Statements
Positive statements: describe the world the way it is. Descriptive analysis Normative statements: Describes how the world should be. Prescriptive analysis
Why Economists Disagree
They may disagree about the validity of alternative positive theories about how the world works. They may have different value and, therefore, different normative views about what policy should try to accomplish
Economic Models
Economists use models for many reasons. We try to model human behavior so we can make accurate predictions about economic outcomes. This involves making assumptions based on theory We use models to help us explain how the economy works.
Richard Damra
Circular Flow Diagram
Firms o Produce and sell goods and services o Hire and use factors of production Households o Buy and consume goods and services o Own and sell factors of production Markets for Goods and Services o Firms sell o Households buy Markets for Factors of Production o Households sell o Firms buy Factors of Production o Land, labor, capital, entrepreneurship
Red arrows = Flows of goods and Services Green arrows = Flow of Income & Payments
Thursday, January 10, 2013
Thursday, January 10, 2013 Econ 1B03
Gains from Trade
In a market economy, people engage in trade with each other Not every family or nation can produce everything it needs effificently We specialize in tasks we do best and trade with others for the things we need that they can provide. (division of labour) In this way, we have gains from trade
Efficiency
Efficiency: we make the best use of our resources (economic decisions) Equity: Fair distribution of resources (political decisions) Market failure: Occurs when the market fails to allocate resources efficiently. Government may intervene Externality: Impact on someone random. (ex: Guy buying tree and their neighbor gets shade). Impact of one person or firm’s actions on the well-being of a bystander Market power: ability of a single firm to unduly influence market prices eg. Monopoly. Some goods just aren’t suited for the market. Eg donor organs
The Economist’s Roles
When economists are trying to explain the world, they are scientists When economists are trying to change the world, they are policy advisors.
Positive vs Normative Statements
Positive statements: describe the world the way it is. Descriptive analysis Normative statements: Describes how the world should be. Prescriptive analysis
Why Economists Disagree
They may disagree about the validity of alternative positive theories about how the world works. They may have different value and, therefore, different normative views about what policy should try to accomplish
Economic Models
Economists use models for many reasons. We try to model human behavior so we can make accurate predictions about economic outcomes. This involves making assumptions based on theory We use models to help us explain how the economy works.
Richard Damra
Circular Flow Diagram
Firms o Produce and sell goods and services o Hire and use factors of production Households o Buy and consume goods and services o Own and sell factors of production Markets for Goods and Services o Firms sell o Households buy Markets for Factors of Production o Households sell o Firms buy Factors of Production o Land, labor, capital, entrepreneurship
Red arrows = Flows of goods and Services Green arrows = Flow of Income & Payments
Thursday, January 10, 2013
