ECO-2023 Lecture Notes - Lecture 2: Opportunity Cost, Comparative Advantage, Transaction Cost
Document Summary
Two opposing views of trade: when people trade, one person gains and the other person loses. (zero-sum game, when people trade, both parties gain. Voluntary trade creates wealth and promotes economics progress: with or without production, with or without money exchanges, voluntary trade is expected to benefit both parties involved. What could reduce the value created from a voluntary transaction: a transaction cost: a monetary or nonmonetary barrier that lowers the benefits of trade, example: surfing the web looking for airline tickets. 2 kinds of property rights: common rights: everybody owns it (example: a national park, private rights: only one person owns it. When property rights are clearly defines and enforced, private owners will develop and direct their property toward uses that others value highly because the market will generally reward them for doing so. Property rights change the incentives of individuals. Suppose in australia, the government allows private ownership of chickens but not of cows.
