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Chapter 1

utsc economics

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2 views

Chapter 1

utsc economics

Uploaded by

zohasadiq123
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 1

Economics-How to make use of the limited resources we have to satisfy as much of the
unlimited walls of people as possible to make them as happy as possible (Efficient allocation
of resources) -Relaying on the decision making process

1. Due to limited resources and unlimited wants, "scarcity" (You do not have enough to do
what you want)
All decisions involve trade-off -(Give and take)
GIVE(SACRIFE) TAKE(GAIN)
(No free lunch) Nothing is free, You must pay the price--Whatever you do you must sacrifice
something

1. Sacrifice--Opportunity cost
----Implicit (something could happen in your pocket)
---- explicit
-----Pay out of your pocket
Ex. Cost of 4 year degree Uoft
-Tuition
-Books
-Food
-Accommodation
-Transportation
(All explicit)
Foregone earning (implicit cost)

1. Rational people make decisions at the margin


Rational-People only act if their actions improve their well-beings
Margin-The relevant "what is next consideration"
Rational people make decision at the margin, when making the next move they think about
what's involve
Marginal cost vs marginal benefit (The next move)
What's relevant?

1. Actions driven by incentive (whatever people do their must be incentive of what


they do)
Incentive-- Margin benefit> Marginal cost
(Marginal benefit higher then marginal cost)
Is it worth it to do it, > If it's not worth it you won't do it

1. ----> 9) Interactions to people in exchange


Interactions means exchanged, What do interactions mean?

1. Trade "exchange" makes people better off


Ex. Having open bottle trading it for a new phone (different values)
Two parties, Both parties should get something out of it
Actions driven by incentive

1. People exchange in markets, which has the tendency to reach equilibrium


>Market(Representing where people exchange, ex. Amazon gives you merchandise and you
pay) Now market isn't a physical place. Where people exchange.
>Equilibrium (Settled) The sellers who want to sell, the buyers who want to buy (everyone
goes home happy)
Eg. iPhone 16> 10 units but people want 15 units<<buyers? (Not happy)
Either sellers or buyers will find their ways, willingly to accept higher price to get what they want
(People will find a way to sasify their demand)

1. Market > Efficiently


(allocate resources to make people better off)

Command system (instead of relaying on the market, (the government tells everyone what to
do) -Doesn't give everyone maximum happiness
How can the government know what we like/don't
Only we know what we like, (this is why market is the best place because only people know
what we want/like =Everyone is happy

● Social contract, if you cannot give people what they want


● Invisible hand (people get into the market, bringing the buyers and seller together so in
the end of the exchange everyone is happy)

1. -------------------------------------------------------------------------------------------------------------- 9.
(Government)
Typically Market Yields Efficient Outcomes

Typically
Market (sometimes Market fails) -air pollution from driving. Too much
Yields
Efficient
Outcomes

● Externalities (people actions affect others, "People don't pay the damage"
● The government can correct fail markets (harmful pollution) by putting up gas prices)

1. ---------------------------------------------12.

1. Identity --> income = expenditure


Ex. At no-frills,---> 20 dollars
One peoples expenditure must equal to one's income
1. Spending > Production capacity
<
100 TV's economy produces 110 TV's
Spending is less than production capacity will lead to layoffs
If people aren't buying all what firms are producing,
Recession (firms will lay of workers)
If you higher more workers firms have to pay higher wages meaning have to put up prices of
products
Inflations

1. If spending not equal to production capacity the government(fiscal) and the central
bank(Monetary) can influence spending to match production capacity

If the production capacity, each firm has a set capacity


2022, Overheating--Inflation
(spending will drop ) Spending> production capacity
The bank of Canada (Raised the interest rate)
Hard to borrow
High interest rate will cut off spending

Chapter 2
Economy Theory
Cause Effect
^Prices go up Quality goes down
Where does the theory come from?

Scientific method
-Observation (observe what we see, Newton's law) Black Friday long lines
● Hypothesise an explanation (trying to explain of what we see)
Sun, moon, earth and jumpier all line up
● Collecting evidence (the data your collect, they don't always line up on fridays)
This observation of why they line up on black fridays,
When collecting evidence it either
● rejects
● accepts

Another Observation: Price drops, same income meaning you can buy more=happy

Law of demand?

Reality ---> Complex


(Effect)
#of movies people watch
Watch a movie on Tuesday?
When looking into this decision in more detail
-Ticket price (Cause)
-Quality of movie
-Income
-weather (when the weather is nice people rather do something else)
A simple decision has lots of consideration

(Assuming all other things constant) -Ceteris paribus (By using this assumption we can focus
on ticket price and how many people go watch movies, allowing us ignore other factors)

Assumptions Simplify complex reality to a manageable scale "economic model"


(model is not the real thing but gives us the important features of the real thing)
Ex. Circular flow model (explains how things work in the economy)

Revenue
Frims

"Households"

Firms hire workers, because they need to produce, when people go to work, they earn income
Everything moves in opposite directions, this means exchange.

Theory---> Cause and effect


Causality not the same as association

Association-Tomato =lower risk of skin cancer

More police offers


Have theory of the cause and effect

Economic theory

1. Detail description (Price of movie ticket, Quality how many people watch)
If Price> 32, Q=0
Every 5$ drop in Price
Quality will go up by 1

Price
----
35
30
25
20
15
10
5
Limited quality
(There is no free lunch) The time you spent at the movies you could've spent your time
somewhere else.

1. Visual representation
A picture says a thousand words, better description because you can see
Price goes up, quality goes down
Price goes down, quality goes up

1. Precise relation "equation"


Assumption
-Quality of the movie (is not constant)
-income
-weather
Given

Superman vs ironman-not constant


People go watch flims more often, the entire

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