week 2_ch030.pptVIP

The Foundation of Economics The economising problem is underpinned by two fundamental facts: Unlimited or insatiable wants of society for goods and services that give utility Utility is the economist’s term for pleasure or satisfaction Economic resources are limited or scarce Five Fundamental Questions How much total output is to be produced? What combination of outputs is to be produced? How are these outputs to be produced? Who is to receive/consume these outputs? How can change be accommodated? The ‘isms’ Pure capitalism (or laissez-faire): private ownership of property freedom of enterprise a system of markets and prices The command economy: characterised by public ownership of resources and property centralised economic planning Political Systems Colletivism (Plato 427-347 B.C.) – The common good. Socialism (Karl Marx 1818-1883): pay should reflect full value of labour. Communists and social democrats Believe in Government own the resources. Dependency theory Structuralist (Nurkse, Prebisch, Lewis and Myrdal) Individualism (Aristotle 384-322B.C.) – private ownership David Hume (1711-76), Adam Smith (1723-90) john Stuart Mill (1806-73) Representative democracy market economy Legal systems Market reforms (Trade, labour, exchange rate, deregulation) Specialisation and Comparative Advantage Two isolated nations Constant costs Straight line production possibilities curve Different opportunity costs Different resource mix and different levels of technology Self sufficiency OC:Aus:1C=1K, Tai: 1C=2K Chapter 3Demand and Supply Learning Objectives Examine the nature of markets. Carefully develop the concepts of demand and supply. Discuss the separate factors that lead to shifts in the demand and supply curves. Explain how prices and output are determined in both the product and resource markets through the interaction of demand and supply. Learning Objectives (cont.) Discuss the rationing function of prices, and their role in resource allocation. Apply the concep