ECON 219 Study Guide - Midterm Guide: Ceteris Paribus, Demand Curve, Planned Economy

• School: McGill University
• Department: Economics (Arts)
• Course: ECON 219
• Professor: Christopher Ragan

Document Summary

Spontaneous economic order: consumers and producers act independently for self- interests and collectively create a coordinated outcome that ts together to produce products in demand; self-organizing economy. Smith: people do not and cannot always be motivated by kindness; self-interest is the foundation of economic order. Self-interest: buy and sell what"s best for them. Incentives: sell when prices are high, buy when prices are low. Market prices and quantities: prices and quantities are determined in markets where individuals trade voluntarily. Institutions: nature of private property and contractual obligations are de ned by law. A production possibilities boundary illustrates three concepts: scarcity, choice and opportunity cost. Scarcity is indicated by the unattainable combinations outside the boundary. Choice, by the need to choose among the alternative attainable points along the boundary. Opportunity cost, by the negative slope of the boundary. The allocation of scarce resources determines the quantities of various goods that are produced.