Projected Lecture Notes

Economics is the study of how societies allocate resources

Resources – useful things

They have utility

                                                                                                             

ALL RESOURCES ARE SCARCE.

Scarcity is not rarity

Scarcity = finite (not infinite)

Societies have systems of resource allocation

All actions have an opportunity cost.

Opp. cost is the cost of something, measured in what is given up to obtain it. It’s the “next-best thing”

Types of Economies

           

1. Traditional Economy

Resource allocation is determined by custom.

Family tradition

Gender tradition

Racial/ethnic tradition

2. Command Economy

Resource allocation is determined by central authority.

Communism is a good example

Proletariat = good, pure workers

Dictatorship of the proletariat

“ From each, according to his ability. To each, according to his need.” (Marx)

In the US, we have command, but it is not communism, nor socialism

Our command is primarily in the form of regulations, for safety.

Examples:

FDA

FCC

FAA

EPA

3. Market Economy

Resource allocation is determined by demand and supply.

No society actually does this in its entirety.

Based on theories of Adam Smith – 1776 he wrote “Wealth of Nations” –

he says business will do the right thing, because of the “invisible hand of competition”

Milton Friedman – latter-day Adam Smith

4. Mixed-market economy

Resource allocation is determined by a mixture, heavy on market

In the US, our system is around 60-65% market, 30-35% command, 5% tradition

Most democratic nations have a type of mixed-market economy

5. Mixed-command

Resource allocation based on a mixture, with the emphasis on command

Sweden is good example

Some democratic nations have a type of missed-command economy

Demand and Supply

US Economy is mixed-market

                                                                  

Law of Demand

All else being equal, more will be demanded at a lower price than at a higher price.

Law of Supply

All else being equal, more is supplied at a higher price than at a lower price.