# Lectures

Informal lecture notes.

### Graphs

We use graph to visualize the relationaship between two variables. We start with two lines perpendicular to each other, the x-axis and the y-axis.

### Economic Resources

• Land–natural resources
• Labour–Human capital
• Capital–Not financial products. Roads, infrastructure, tools.
• Firms–Will combine all three above to produce a consumption good.

### Economic Models

• Microeconomics–Study the individual and the firm.
• Macroeconomics–Households, government, countries.

A model is a simplification of reality. You need the ability to abstract from superfluous information.

• Common Assumptions–Rationality of economic agents, ceteris paribus (all else being equal.)

#### Circular flow

Businesses pay workers for their lavour.

1. Business —–—> Workers (households)

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Workers pay business for their final goods.

1. Business <—–—— Workers (households)
2. Business —Final Goods—> Workers (households)

### Utility

• Utility–Overall satisfaction derived from an activity. Utility is ordinal (the order matter), but not cardinal (the distance between numbers has no meaning)

• Rational behaviour– The pursuit of self-interest. The pursuit of happiness. One of the best economic insight of Adam Smith was to realize that the pursuit of self-interest leads to social cooperation. For example, the baker is not cooking pizza out of altruism, but rather out of self-interest. Does not mean the maximization of material consumption.

### Opportunity Cost

• What is the opportunity cost from one year of school.

• Why do poor people have more leisure than the poor? Americans with a household income of more than $100,000 indulge in 40% less passive leisure (Facebook, Instagram,…) than those earning less than$20,000.

$\textrm{opportunity cost} = \frac{What \; you\; give\; away}{What\; you\; get}$

### Market Economy

Capitalism; Democratic system

### Command Economy

How to promote efficiency? How to determine what is produced?

### Economic Goals

• equal opportunities
• target inflation
• full employment
• economic growth
• economic efficiency