ECON 102 Lecture Notes - Lecture 2: Ceteris Paribus, Productive Forces, Barter
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ECON 102 Full Course Notes
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The production possibilities frontier: technical efficiency, productive opportunity cost. Models: simplifications to understand complex situations and draw conclusions of cause and effect (generally mathematical) thought experiments . Suppose the world works as if the model were true. Hold still all relevant moving parts that aren"t currently of interest to the application at hand e. g. resusci annie. In the real world , all else is not constant: models are inherently false! Consider the simplest model of the macroeconomy: the circular flow model. 2 agents (economic actors ): households and firms. 2 markets (forums for exchange): goods & services and factors of production. Money facilitates the flow of g&s, alleviating barter"s necessary double coincidence of wants . Two ways to measure total economic activity: factor market income or spending on g&s. The merit of models is their simplicity: make complex phenomena easier to understand. Models will always omit potentially relevant factors. Banks, government, other countries, transactions between firms, distribution (equity of activity)
