ECO-2023 Chapter Notes - Chapter 1: Guideposts, Logical Consequence, Opportunity Cost

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5 Dec 2016

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Economics- the study of human behavior, with a particular focus on human decision- making. Origins date back to adam smith, a scottish moral philosopher, who expressed the first e(cid:272)o(cid:374)o(cid:373)i(cid:272) ideas i(cid:374) his (cid:271)reakthrough (cid:271)ook, (cid:862)an inquiry into the nature and causes of the. Smith sought to explain why people in some nations were wealthier than those in others. Economics is about scarcity and the choices we have to make because our desire for goods and services is for greater than their availability from nature. Scarcity prevents us from being able to completely fulfill our desires: present whenever there is less of a good or resource freely available from nature than people would like. Choice- the act of selecting among alternatives, is the logical consequence of scarcity. Resources- the ingredients, or inputs, that people use to produce goods and services: human- productive knowledge, skill, strength of human beings, physical- tools, machines, buildings, natural- land, mineral deposits, oceans, rivers.

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Considered by many to be the founder of modern economics, Adam Smith published his masterpiece The Wealth of Nations in 1776. Smith wrote in support of market economies as feudalism in Europe was unravelling. Hence, many of his insights clashed with the ideas of his contemporaries whom continued to be drawn to less modern notions of markets as governed by duties owed, hierarchy, master and servant, and paternalism. In Smithâs view, markets are guided by the self-interests of market participants, not by obligations imposed, moral or otherwise, by religious authorities, aristocracy, and crown.

Consider the following quote taken from The Wealth of Nations:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizensâ¦.Every individualâ¦neither intends to promote the public interest, nor knows how much he is promoting itâ¦.He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part in it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

Now suppose that Jim enters the market to purchase a gallon of milk from a local dairy. Jill enters the market to contribute $100 to a charitable cause. Based on Smithâs analysis, which transaction is guided solely by self-interest? How could either transaction contribute to the public interest? Is one superior to the other in that the first transaction confers mutual economic gains to both parties while the other confers a gain to only a single party? Are two gains superior to one? Briefly discuss.

Rules: Limit your thoughts to no more than two pages total, using Microsoft Word, 12 point type in Times New Roman font. Double spaced with one inch margins throughout. Do not worry about being right or wrong, the purpose of this exercise is for you to stretch your mind and to think critically

ECO-2023 Chapter Notes - Chapter 1: Guideposts, Logical Consequence, Opportunity Cost

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