Week One Lecture Prof Paulone

 How does an economic system work when it is functioning properly?  What mechanisms of social cooperation do we depend upon?

John Maynard Keynes : The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions.

 Land  Labor  Capital  Entrepreneurial Ability Economizing - Allocate resources in a way that allows the economizer to derive whatever he/she wants Results from scarcity Involves trade-offs

 Comparative advantage Describes the ability of a person, company or country to produce a good or service at a lower cost relative to other goods and services. Even though a country may have an absolute advantage over another country, it still will be better off specializing in the good or service in which it has a comparative advantage and trading for goods and services it doesn't produce as efficiently.  Division of Labor Assigning of specific tasks to workers and productive resources; it is a reflection of economic specialization.  Economy The careful or thrifty use or management of resources, such as income, materials or labor.  Economic Specialization Concentration of activity in a few particular tasks or in producing only a few items.  Efficient Allocation of Resources The allocation of an economy’s resources among the production of different products that leads to the maximum satisfaction of consumers’ wants, thus producing the optimal mix of output with scarce resources.

 Macroeconomics The study of economics in terms of whole systems with reference to general levels of output and income and to the interrelations among sectors of the economy.  Microeconomics The study of economics in terms of individual areas of activity (as a firm, household or prices).  Productivity The amount of physical output for each unit of productive input.