1. What is Econ.?---->2. Scarcity-------------->3. Choice-------->4.Comp. & abs.Adv.----> 5. Budget--->6. Supply
    limited Resources        F.O.P.                              Econ.?s                Opportunity Cost                 PPF               Demand
    Unlimited Wants         L, L, K, Mgt .A.                Econ. Systems      Utility                                                        Equilib.
                                      Y = r+w/s+i+Π                                
                                      Time   
                          
I. What is Economics:
-It is the study of economics.
-It is the means and efforts by which humans satisfy unlimited wants with limited resources.
-It is the study of mankind in its ordinary business life.
-it is a behavioral science
-Economics is the study of how to get people to do things they are not wild about doing or not to do things that they are wild about doing.
-It is the efficient utilization of limited economic resources available to achieve maximum satisfaction virtually unlimited human material wants.
Limited resources and unlimited wants -->Dilemma
efficient  Benefit/cost; get more out than what you put in; markets with available information and minimum waste
individually or collectively
association or cooperation
Plan vs. unplanned
centralized vs. decentralized

 SCARCITY ----> ECONOMICS <-------ABUNDANCE
Economics. Deals with consumption, production and technology
Globalization and downswing
Any economic decision is assume to be a right decision, rational and trigger by the best interest or self interest.
Self interest - means maximization of some utility by a broad range of human limitations
                     -Means insatiability, no limitations
                     -Describe how people make choices . Each person has a has unique goals and attitudes and  face different costs. Rational self interest depends of the information at hand and the individual's perception of what is in  his or her       best interest. People will make different choices even when facing the same information.
For example seat belts, college volunteer, speeding Benefit/cost analysis
Rational Self Interest: how people choose options that give them the greatest amount of satisfaction/utility
Human Wants or desires: refers to all the goods and services and conditions of life that individuals desire. Wants varied among people , location, status and time. Human wants are always greater than g/s available.
- Even if I get all I want (beer, pretzels, pencils) there are always more and better things --> insatiable.
- Wants are changeable and partially society determine
-Quantity of good and services; and usable resources depends on technology and human actions
- Wants are always ahead of society's ability to satisfy them.
- NEEDS SUSTAIN LIFE
- WANTS ENHANCE LIFE.
Scarcity of resources are limited to wants.
-Decisions are necessary to determine how a given volume of resources is going to be allocated to production, how income is derived from production is going to be distributed to the various factors of production.
An Economic System is the institutional structure through which individuals in a society coordinate their diverse wants and desires.
An Economic System is the means by which the economy is organized
An Economic System is a set of mechanisms and institutions for decision making and for the implementation of decisions concerning production, consumption, income distribution, standard of living, technology, etc within a sovereign geographic area and consists of mechanisms, organizational arraignments and decision making rules.

Five important things about economics:
1. Economic Reasoning is how to think like an economist, making decisions on the basis of costs and benefits. Economic reasoning provides a framework within which to answer a question.
2. Economic Terminology: define, repeat, memorize
3. Economic Insights: what economists have about issues and theories that lead to those insights. These insights are base on economic theory which are generalizations about the working of an abstract economy.
One insight is that no one coordinates the American economy save the Invisible hand.
4. Economic Institutions are physical or mental structures that significantly affects economic decisions.
Difference in economic institutions can help explain differences in economies among nations.
5. Economic Policy is an action or inaction taken, usually by government, to influence events.
Decision makers weight the advantages and disadvantages each option offers.

Economics and invisible forces .
1. The opportunity cost concept applies to all aspects of life and is fundamental to understanding economic forces.
2. Economic forces are the necessary reactions to scarcity.
3. When goods are scarce, they must be rationed. Rationing is a structural mechanism for determining who gets what. Examples of rationing: price, lottery, first-come, first-served.
4. One of the important choices that a society must make is to what extent economic forces are allowed free rein.
5. A market force is an economic force that is given relatively free rein by society to work through the market. Market forces ration by changing prices.
6. Economic reality is controlled by three invisible forces.
a. The invisible hand is the price mechanism, the rise and fall of prices that guides our actions in a market.
-Adam Smith, in his Wealth of Nations, argues that: 'the propensity to truck, barter, and exchange one thing for another,' is part of human nature. And that 'it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, from their regard to their own interest.' "Don't cry to anyone, don't beg to anyone be selfish! Make a profit! Don't cry to anyone, don't beg be selfish!"
b. The invisible handshake refers to social and historical forces which can play a significant role in the economy.
c. The invisible foot refers to political and legal forces which also play their role.
7. What happens in society can be seen as a reaction to, and interaction of, the invisible hand, the invisible foot, and the invisible handshake.

IV. Economic Terminology:
 A. Learning economic terminology takes repetition and memorization-hardly fun things to do.
V. Economic Insights
A. General insights into how economies work are often embodied in economic theories-a formulation of highly abstract, deductive relationships that capture inherent empirically observed tendencies of economies.
-Alfred Marshall, in his 1890 masterpiece, Principles of Economics, argues that 'economic doctrine is not a body of concrete truth, but an engine of the discovery of concrete truth.' Marshall was the first to focus on economic reasoning rather than on economic truths.
Economic Reasoning Vs. Economic Truth:
Problems; weakness or fallacies dealing with Economics:
 1. Association and Causation: The incorrect idea that because events seems to occur together, one causes the other; if two variables are associated or related in time, one must necessarily cause the other. I.e. rain and get wet; eat ice cream and get fat.
 2. Fallacy of Composition: What applies in the case of one applies in the case of many. The incorrect belief that what is true for the individual or part must necessarily be true for the group as a whole. I.e. savings, salary increased, standing up in a stadium.
3. Ceteris Paribus: "Everything else being equal"; "Holding constant"or "controlling for the influence of other factors". Ceteris Paribus allows economists to develop one to one , cause and effect relationships in isolation, that is, removed from other potentially influential factors.
4. Assumptions: Make facts that are not there to be able to solve a particular issue. Statements accepted as true without proof.
B. Since theories are too abstract to apply to specific cases, a theory is often embodied in:
1. An economic model- a simplify view of reality; a framework that places the generalized insights of the theory in a more specific contextual setting.
2. Or in an economic principle-a commonly held insight stated as a law or general assumption.
C. The invisible hand theory.
1. An efficient economy is one that achieves a goal as cheaply as possible.
2. This insight is called the invisible hand theory-a market economy through the price mechanism will allocate resources efficiently.
3. Theories, and the models and principles used to represent them, are abstract but efficient means of conveying information.
4. In order to understand the theory you must understand the assumptions underlying the theory.
D. Economic theory and stories.
1. Economic theories and its models are a shorthand means of telling a story.
2. If you can't translate a theory into a story, you don't understand the theory.
VI Economic Institutions:
A. Economic Institutions are complicated combinations of historical circumstances and economic , cultural, social, and political pressures.
B. Cultural Norms: determine what you identify as legitimate activities by individuals, business, and governments.
1. Cultural Norms are standards people use when they determine whether a particular activity or behavior is acceptable. Examples;
a. In the U.S., traffic proceeds on the right, in Britain the left.
b. In the U. S., grownups often tousle children's hair, Chinese considered a transgression.
c. In the U. S., black is a color of morning; in India is white.
d. In U.S. ; people put hands on lap when eat; in Costa Rica hands stay on table at all times during meals.
e. On time/ late
f. talk business during dinner.
g. bribery
h. stores how shoe soles in the USA.
i. How to use silverware.
VII. Economic Policy Options:
 - In Applying economic theory to reality, you have got to have a sense of economic institutions.
- In order to carry out economic policy effectively, you must understand how institutions might change as a result of the economic policy.
- Good objective policy analysis is that which keeps your value judgements separate from the analysis. Objective analysis keeps, or tries to keep, subjective views - value judgement separate.
- Subjective policy analysis is that which reflects the analyst's view of how things should be.
- In order to make clear distinction between objective an subjective analysis, economists have divide economics into three categories or approaches:

1. Normative Economics:
It is the study of what the goals of the economy should or ought to be.
I.e. People on welfare should work in order to get benefits; Inherited wealth should be tax more heavily; corporations should not be allowed to moved their facilities overseas unless it is agreed by labor unions.
- It is an attempt to prescribe policies to a change in circumstances. How economic functions should perform
-Makes statements about ought to be or ought to do. Value judgements, subjective.
- Analyze economics from another point of view i.e. political, religious, philosophical, etc).
- Can give rationale , but don't explain how to accomplish it
- Don't examine consequences of the "ought to be"; very safe way of talking
- Rational Statements but not clear solution.

2. Positive economics:
- Is the study of what is, and how the economy works.
-Concerns about how the economic systems perform the basic functions of what, how, and whom.
- Describes and explains the system as it is.
- makes statements regarding what ought to be or ought to do with an explanation of how, why and the consequences.
- tells us what is ,was, and will be - Part - future and present
- Goes beyond the rationale of why we are making statements; considers the present situation and future consequences.

3. Art of Economics or descriptive Economics:
It is the application of the knowledge learned in positive economics to the achievement of the goals determined in normative economics.
-Describes the facts, relate them to the principles and theories to develop policies.
- Scientific point of view . Look at a problem; (i.e. employment ) the reasons for it, possible solutions, and develop policies. Policies may not bring the same end results.
- Have to implement course of action, but it may not be the correct. Rational behavior.
- Maintaining objectivity is easier in positive than normative
- It is harder in descriptive since it embodies both.
- One of the best ways to find out feasible economic policy options is to compare them from one country to another.

VIII. Economic Theory: Macro and Micro
Economic theory is divided into Macroeconomics and Macroeconomics.
1. Microeconomic: Econ. At the level of individuals
- it is the study of individual choice , and how that choice is influenced by economic forces.
- Considers economic reasoning from the view point of individuals and firms and builds up from there to an analysis of the entire economy.
- I. e. Pricing policy of the firm; households' decisions on what to buy; how market allocate resources among alternative ends; price equilibrium, efficiency and equity.
- Micro economics analyses from the parts to the whole; personal choices; firms behaviors and individual markets.; how the parts hang together.
- How the individuals fit the firm, the firm the industry and the industry the market; focuses on resource allocation and the price determination in individual markets for goods and services.

2. Macroeconomics: Study the econ. As a whole
It is the study inflation, unemployment, business cycles, economic growth, full employment, price stability, money supply.
 - Studies the ways in which all the parts fit together; economic problems are solve by society; aggregate economic performance.
- Macroeconomics is the branch of economics concern with the nation's total economic activities.
 - Seeks to understand the overall structure and performance of a nation's economy.
- Macroeconomics theories of how the economy as a whole works are base on micro foundations.
Macro Features:
1. Total Output: Average price of all commodities.; changes in productivity, standard of living, capability of average resident of a nation to consume g/s.
2. Unemployment: Number of people who are interested in finding a job but currently do not have one.
3.Money Growth and Inflation: Quantity of level of money in circulation ( Money suppl;y) and the overall price level in the
U. S.
4. Money Growth; Average annual rate of change of the Fed's money base on productivity.
5. Inflation: Measure of price changes.
6. International Variables: Trade balances, X and M, rate of exchanges and currencies.]
7. Business Cycles
8. Economic Growth and development

Why is Macro a Controversial Subject:
1. Different views as to How much aggregation is appropriate.
2. Macro works with artificially constructed aggregate measures of economic activity which can not be manipulated through control methods.
-Macro does not look at individual prices but at the average prices or money as an item to facilitate exchange of goods and services.
- Therefore; Macro and theories look at the overall economic activities and tries to explain how aggregate economic variables are determine and what role money plays in the process.
- Macro looks at the General Equilibrium approach of analyzing the economy by examining the multiple interactions of all the individual consumers, businesses, workers, firms, governments and foreign sectors.

                                                        II. SCARCITY

                                When less of something is available than is wanted at a zero price!
                                        Scarcity is a pervasive economic problem.
                                        Resources have only alternative uses
i.e.
1.Land : factory, house, roads, parks ( Disney vs. orange farmers)
2. Labor: cleaning, porter, different manual services, can't exist by itself sevice
3. student lawyer, dr., accountant, teacher
4. Tractor bridge, river, roads, dams,
5. Steel bridge, car, building,
Because resources are limited and can be use alternatively, they command a price and the amount of goods and services that can be produce are limited over time and with technology new resources and uses can be found.

PRODUCTIVITY: The quantity of output produce per unit of time and per unit of resources (F.O.P) with zero defects.

Despite the differences , human societies everywhere have one thing in common scarcity or limited resources. But scarcity is not equally intense everywhere.
Some economic systems people live in relative comfort even though frustrated and annoyed because can not get everything in some systems millions ( 5,425 billion) only 808 million live in comfort the rest in poverty without hope.

Different nations have different inhabitants and different proportion of economic resources and technological know how.
- the well being of nations are influence by the type of economic system and how they decide to answer the basic economic questions and deal with scarcity.
- People under their sovereignty, make different arraignments for allocation of resources at their disposal and apportioning goods and services these resources produce

- Some economic systems are bad arraignments because they failed to guide people toward using widely disperse use of resources.

The CIRCULAR FLOW summarizes the flow of goods and F.O.P. from the HH to the Business.
                                                      Factor Market

                                            HH                                     BUSS
                                                      Product Market

Factors of Production = Inputs = Resources are always combined in the production process to produce outputs.
-Desire goods and services in a year are produce using the Production Possibilities.
It is choices
- Limited resources are inputs in the production process: Human, natural and capital resources.
- Technology refers to the set of all known methods of production.
- Resources are milk, sugar, flower, baker and tech is the baker's recipe ( information and knowledge).
-Human resources are the people who are willing and able to participate in the production process
- Natural resources are the productive ingredients not made by people and as yet untouched by them.
- Capital is all the productive ingredients made by people
- Technology is the methods of production, knowledge, ability, innovation, invention i.e. 73 methods to produce steel
- Production not merely physical i.e transportation of product, storage, irsk, insurance, retailing, whole selling

1. Land  (L) ---> rent (r)
Natural resource or natural power of the soil and environment ( fuel, water, soil, energy, timber, oil, air) . Thus resources is fixed and therefore the supply is Inelastic. What gives value to land is location and other resources within the land and the demand determines rent.
Agrarian reforms in developing economies.

2. LABOR (L) ---->  wages (w) and salary (s)
the physical energy and manual and mental ability of the population . Labor is a backwards bending supply. Human resources or natural resources of the population.
Skilled vs. unskilled
wages  is apercentage per hour
salary  is a fixed time for a contract or task.
- Assume that everyone has this resource
- Caution with child labor laws in U.S.
Marx -Leninism and the theory of labor.

3. Capital (K) ---> Interest (i) , manufactured resources. Durable inputs which themselves have been produced in the past ( roads, buildings, car, trucks , tools, machines, computers)
Money  is nothing, medium of exchange, store of value unit of account and deferred payments. It is use to buy factors of production including capital and it is a measure of wealth.
Money as Stock: don't use money to make money can invest and retained value but doesn't keep up with the purchasing power. Can gain or loose purchasing power.
Money as Flow: keeps up with purchasing power because of interest and increase in power.

Human Capital: Knowledge and skills that people in the labor force posses and it acquired through education, on the job training and self teaching.
Require accumulation of activities and experiences that adds to people's knowledge.
Investment in education to get a better return.

4. Managerial or Entrepreneurial Ability (MglA) ---->   profit
It is the economic leadership and imagination in the risk taking, innovating, coordinating and financing the business activities .
Innovation: the process by which a new invention is integrated in the economy, where it reduces production costs and provides people with new types of goods and services. I.e. human capital in health care, education, vocational training, work experience.
Invention: A new way of utilizing the resources
I.g. Levi Strauss left NY in the 1860's to San Francisco during the gold rush. Not interested in gold but to sell clothing to miners in the voyage and before arrived in San Francisco he had sold all . Miners asked for rough pants. He had only canvas for tents and ribets so he designed the denim jeans and built a factory
Bill Gates, Dave Thomas, Carnegie, Rockefeller. Bennie Babies
Managerial Ability are the resources use to produce those things that society desires and the return is profit.

 Concepts related to factors of production:

commodities: g/s brought and sold and can be measure may be tangible or intangible; durable or nondurable.
Goods: are tangible output which bestows utility on the person possessing them while
services are intangibles non physical outputs which flows from employment of FOP :cleaning; professional advise
Land
Labor Managerial ability Productivity
Capital
Technology: Hardware; capital equipment and software; knowledge to operate and use technology or hardware.

EFFICIENCY: the value of what is produced which exceeds the opportunity costs of all the inputs used to produced it. Energy efficient, car.
Efficiency deals with the effectiveness in which the system uses its resources at a point in time :Static efficiency or through time: dynamic efficiency.
 Types of Efficiency:
1. Allocative ( what) efficiency: requires the pattern of national output to mirror what people want and are willing and able to buy.

2. Productive ( How ) efficiency: requires minimizing opportunity costs for a given value of output.

3. Distributive ( who) efficiency: requires that specific goods be used by people who value them relatively the most (price)
 4. Economic or allocative efficiency: the intensive growth through the better use of economic resources. The use of resources in the right places to get the most efficient output. Can not produce more but simply allocate resources through the price system.

5. Technological efficiency: extensive growth through expanded use of economic resources . The ability to produce more output with the fixed amount of resources through innovation and invention.

 CONCEPTS RELATED TO FACTORS OF PRODUCTION

Commodities: G/S bought and sold and can be measure may be durable and nondurable ; tangible and intangible.

Services: non physical output which flows from employment of FOP. Cleaning, professional advise. A society is considered advance ( econ. Development) if its activities are increasingly service. U.S. GDP is about 60% service. Services are intangible.

Difficult sometime to separate a good and a service. I.e. blood transfusion or hair perm.

Goods: are tangible output which bestows utility on the person possessing them..Can be physically touch.

Bads: gives us disutility or dissatisfaction. Items to whicch we will pay to have less. An output from economic activity which doesn't benefit society. Item for which we will pay to have less Most cases are external costs associated with production. Bads must be taken into consideration in the national income. I.e. pollution, health, crime.

Free Good: Has no economic value or price P= 0.  Scarcity It is possible because its supply is either abundant or rationed..Would not worry about allocation because resource will be unlimited.

Economic Good: Uses economic scarce resources which are have utility and are limited. which are either allocated or rationed by the price system. P>0 and has utility. Any item which is scarce
 Private Goods: Any items that is scarce.a good which when consumed by a person can not be consumed by another and whose supply can be restricted to one consumer. Revenue/Cost Analysis and provided by private sector.

Club Goods: a good is which available to a group of individuals. It is a mixture of private and public and non members can be excluded. I.e. cinemas, health clubs, sporting, Rotary, Elks.

Capital Goods: goods produced for the production of other goods. ( intermediate ).

Consumer Goods: directly to consumer or final goods.

Financial Capital: Money save that can be use to purchase capital goods.

Public Goods: Provided by the Public Sector. Goods and services available to everybody. Can not exclude nor discriminate nor exclude the non payers. Uses the Benefit / Cost Analysis.
It is a non rival and finance through taxation, therefore; the P > 0 but not as much as if made by private sector. Not a free good everyone has equal access to them because provided by society as a whole. i.e vaccinations, street lighting, sewage, police, education, airports.

Merit Goods: Public goods desirable for consumption but the users pays a fee. I.e museums, theaters, zoos, turnpikes.

Poverty: the income level ( Purchasing power) which is just sufficient to provide minimum subsistence for individuals, society or family.
- Controversy as to what is minimum
- Not sufficient resource or income to provide the basic needs of life: food, clothing and shelter.
- Even Smith and Ricardo could not define poverty in terms of physical survival along.
When outputs ( goods and services) are produced, side effects occurred that are felt by people who are not a party of the transaction, or directly involved in the transaction or exchange but affects the well being of others called a third party beneficiary
Externalities: Costs or benefits associated with the production, consumption and distribution that are not reflected in the market prices and fall on parties ( third party beneficiary) other than the buyer and seller.
Positive externalities: are spillover benefits to third parties ( free rider) that result from production or consumption of good and services.
Negative Externalities: Harmful effects to third parties ( free good or bad).

                                                             III CHOICE

Scarcity implies that choice have to be made, and making choices implies the existence of costs!
             Basic economic questions:
1. What and how much to produce?
2. How to produce it?
3. For whom to produce it?
4. How should flexibility be maintain through the changes over time.
 

MACRO QUESTIONS.
1. Inflation
2. Unemployment
3. Economic Growth
4. Balance Budget.
5. Business Cycles and Economic Fluctuations
Questions ask;
What goods and services are being produced?
By what methods are g/s being produce?
How is the supply of g/s allocated among members and sectors of society?
Are the country's resources fully utilize or lying idle and thus wasted?
Is purchasing power of money and savings constant or is it eroded b/c inflation?
Is the economic capacity to produce growing or remaining constant?
These questions deal with efficiency

Types of societies:
1. Barter: exchange of g/s for g/s needs double coincidence . Direct exchange of g/s w/o using money
2. Money: exchange of g/s for money. Money is the medium of exchange.
3. Credit: exchange of g/s for future purchasing power.

Functions of the Economic System:
Faced with pervasiveness of scarcity, all societies, from most primitives to the most advanced, must determine the basic economic questions.
- Under the Free Enterprise System individuals own property and resources and individuals and firms make private decisions individually or collectively.

1. What to Produce?
- It is  the way of choosing the right combination of goods and services. Technological changes, growth and resource allocation.
- What to produce refers to which g/s a society chooses to produce and in what quantities to produce them?
Society can not produce everything, therefore; must decide which g/s to produce and which to forgo (opportunity cost).

Over time, only those g/s that the consumers are willing and able to pay a price sufficiently high to cover at least the cost of production will generally be produce. (Allocative). Can manufacturers will not produce autos costing one million if there is no costumers to buy them?
Consumers induce firms to produce more of a commodity by paying a higher price for it; on the other hand, a decrease on  price that consumers are willing and able to pay for a commodity will usually result in decrease in output.
I.G. an increase I n the price for milk and decrease in the price of eggs signals the farmers to raise more cows and less chickens.

What G/S will be produced and in what quantities- will more cable cos. Offer pay - per view services? Or will more movie theaters be built? Will young professional vacation in Europe or live in larger houses? Will more high performance sport cars or more utility vehicles or vans be built?

2. How to Produce?
It is the way in which resources or inputs are organize to produce G/S that consumers want. How is the supply of resources being allocated with the current production techniques among the members of the society? How to mix the resources to produce maximum output?
Should textiles be produce with more or less labor and capital?
Since price of the resources reflect the relative scarcity, firms will combine them in such a way as to minimize cost of production. By doing so, they will use resources in the most efficient and productive way to produce those commodities that society wants and values the most.
When the price of a factor of production increases, firms will attempt to economize on the use of that factor and substitute for cheaper resources so as to minimize their production costs.
I.G. increase in the minimum wage leads firms to substitute machinery for un-skill labor or move facilities outside of that economic system.

How would the various G/S be produced? Will a supermarket operate with three checkout lines and clerks using scanners or six check out lines and checking prices by hand?
Will worker weld vans by hand or use robotics to do the job?
Will farmers keep track of the livestock feeding schedules and inventories by using paper and pencil or computers?

3. For Whom to Produce?
Refers to the way in which the output is distributed among the members of the society. What sectors will provide the greatest rate of return? Deals with distribution: which sectors will get the income, wealth and G/S?
Those individuals who possessed the most value skills or own the greatest amount of other resources will received higher incomes and will be able to pay more and cox the firms to produce more of the commodities they want. Their greater monetary votes enable them to satisfy more of their wants.
I.G. Society produce more goods and services for the average physician than for the average clerk because doctors have greater income than clerks.
In all but the most primitive societies, there still be another function and that is must provide for the growth of a nation ( Economic Growth) which is affected by price systems, governments ( tax, research. Education, training)
i.e. Interest provide incentives to postpone consumption therefore, releasing resources to increase society in stock of capital goods. Capital accumulation and technology improvements and increased in quality and quantity of productivity of labor,  nations grow as over time.
For whom to produce deals with who? When? And where to produce?
When will various G/S be produce? Supermarkets operate 24 hours a day seven days a week? Will a car factory close for the summer? Increase house building in spring?
Where will the goods be produce? American Express charge slips in N.Y. or Barbados? Will Honda make cars in Ohio or Japan? Will Boeing built planes in Seattle or Hong Kong?
Who consume the various G/S? Distribution of economic benefits depends on the distribution of income. Economic votes . People with high incomes consume more than people with low incomes.
Lawyers consume more than secretaries. People in U.S. consume more than people in Ethiopia.

4. How should flexibility be maintain and rationing over time?
An economic system must allocate a given quantity of G/S over time and firm should be flexible in the production of good and service. I.e fade and style.
Rationing over time is accomplish by the Price System ( Invisible Hand) in the market place.
I.e. price of wheat is not so low immediately after harvest. Speculate with wheat right after harvest ( P is low) and sell it later before the next harvest when P is high. Therefore, commodities through the price system are rationed throughout the year ( time).

Circular Flow: inputs- outputs; buyer/seller; demander/ supplier; and consumer/ producer.
Economic Growth: refers to an increase in output ( GDP) of G/S produce in a system/ country and/ or increase in output per capita.
Economic Development is broader than growth and includes societal changes and improvements in the well being of population through innovation and invention, better distribution of income, more variety and choices and it is sustain through the structural changes on an economy.
 

I. Economic Systems:
A. Any economic system must coordinate individuals' wants and desires. It must answer three questions regarding coordination:
1. What, and how much, to produce.
2. How to produce it.
3. For whom to produce it.

B. One problem every economy faces is what to do with individuals who want to do what 'society' does not want them to do.
1. Example: society may want and need a garbage dump and individuals may agree.
2. NIMBY (Not In My Back Yard) may then become a problem. NIMBY is a mind set familiar in the 1990s, wherein individuals may approve of a project if it is placed somewhere else.

C. Another problem every economy faces is what to do with individuals who sit around doing nothing since the economic system does not give them the incentive to do something.

D. The coordination problems faced by society are immense.

E. The basic economic questions are answer different by the different economic systems. There are three main economic system:

1. Traditional
2. Market Economy / Capitalism
3. Command /Socialism
4. Mixed  3*3 = 27 or 905 of economic systems which are combination of the three above.

1. Traditional:   (Amish, American Indian, Appalachian)
This system is one which does not answer the basic economic questions and resists changes. The questions may be answer the same way from generation to generation. Typical of some third world countries. Is is a system of subsistence level; no profit motivation; no room for growth, development or experimentation. Often have important resources but lack of technology and capital. Strongly affected by religion, traditions, politics.

2. Command: A central authority determines the answers of the economic questions based on priorities or needs rather than wants. Best for economic growth; not diversified; deals with societal growth not consumer or individual growth. Uses full production of economic resources or 100% capacity; no choice available to consumer; produces what is best for society as a whole. One third of the world's population such as China, Angola, Yemen, North Korea, Viet Nam, Congo, etc.
It is restrictive: individuals lack of alternatives and are denied products and choices of sellers.
It is coercive: people are force under treat of harm.
It is centralized and planned: few people or agencies have decision making power.
It is unfair; arbitrary and disparate and dishonest. High economic growth.

3. Market/ Capitalism:
Each individual answer the economic questions and makes his or her own choices, specialization exists, trigger by the self interest, answers in base of wants not needs, resources are use at full employment that is not a 100% capacity,
characterized by inheritance and bequeath of property, low economic growth.
It is free choice among alternatives in the consumption and production
It is voluntary, decentralized and wide spread of participation by large number of firms and people.
Its is fair evenhanded of people in similar circumstances.
I..g Hong Kong, Singapore.

 The two main economic systems of the past 50 years, socialism and capitalism, answer these coordination problems differently.
 

1. Capitalism is an economic system based upon private property and the market in which, in principle, individuals decide how, what, and for whom to produce. Under capitalism:
a. Individuals are encouraged to follow their own self-interest, while market forces of supply and demand are relied upon to coordinate those individual pursuits.
b. Government must allocate and defend private property rights-the control a private individual or firm has over and asset or a right.
c. Markets work through a system of rewards and payments.
d. Individuals are free to do whatever they want as long as it is legal.
e. Fluctuations in prices coordinate individuals' wants.
f. The primary debate among economists is not about using markets; it is about how markets should be structured, and whether they should be modified and adjusted by government regulation.

2. Socialism is, in theory, an economic system based on individuals' good will toward others, not on their own self-interest; in principle, society decides what, how, and for whom to produce.
a. Socialism in theory.
(1) Socialism is an economic system that tries to organize society in the same way as families are organized, trying to see that individuals get what they need .
(2) If individuals' inherent goodness will not make them consider the general good, government will force them.
b. It is difficult to provide an unambiguous definition of socialism.
c. Socialism in practice.

'Manifesto of the Communist Party,' Karl Marx and Friedrich Engels.
(1) Economic systems based on upon people's goodwill have tended to break down.
(2) Socialism in practice is often called Soviet-style socialism-an economic system that uses administrative control or central planning to solve the coordination problems what, how, and for whom.
(a) Soviet-style socialism embodied both economic and
political features.
(b) Some say Soviet-style social failed because it did not
offer acceptable solutions to the three central coordination problems.
(c) Other say Soviet-style socialism is no reflection on
the failure of true socialism because true socialism was never tried.
3. Differences between Soviet-style socialism and capitalism.
a. The differences are in who does the planning, what the planners are trying to do, and how the plans are coordinated.
b. In capitalist nations, businesspeople do the planning in order to make a profit and the market is relied upon to see that individual self-interest is consistent with society's interest.
c. In Soviet-style socialist nations, government planners decide what people need and should have and the coordination is forced upon society by the planners.

4. Evolving economic systems.
a. Types of economic systems of the past.
Classic Readings in Economics: 'The Chief Features of the Industrial Revolution,' pp. 31-35. This selection, taken from Arnold Toynbee's, Lectures on the Industrial Revolution (1884), argues that the agrarian revolution played as large a role in the Industrial Revolution as does the manufacturing revolution.

(1) Feudalism is an economic system in which traditions (the invisible handshake) rule. It dominated the Western world from about the 8th to the 15th century.
(2) Feudalism gave way to mercantilism, an economic system in which government (the invisible foot) determines the what, how, and for whom decisions by doling out the rights to undertake certain economic decisions.

(3) Mercantilism gave way to the Industrial Revolution-a time when technology and machines rapidly modernized industrial production and mass produced goods replaced handmade goods.

(4) Capitalism evolved from the Industrial Revolution. Some economists prefer to call the system that evolved from mercantilism the market economic system-an economic system that relies on markets to coordinate economic activities.

b. The need for coordination in an economic system.
(1) Adam Smith in his classic, Wealth of Nations (1776), explained how markets could coordinate the economy without the active involvement of government.

(2) Markets coordinate economic activity by using the price mechanism to direct individuals' self-interest into society's interest .

c. Evolutionary changes within systems.
Classic Readings in Economics: 'Can Capitalism Survive?' pp. 27-30. This selection, taken from Joseph Schumpeter's, Capitalism, Socialism, and Democracy (1950), argues that capitalism, by its very success, will undermine that which gives it life-entrepreneurship.
(1) Economic systems are constantly evolving with changes in the three invisible forces.
(2) A purer form of capitalism evolved into welfare capitalism-an economic system in which the market operates but government regulates markets significantly.
(3) In socialist nations the opposite took place: socialism integrated capitalist institutions into its existing institutions.
d. A blurring of the distinction between capitalism and socialism.
(1) Recent events point to a blending of capitalism and socialism.

 Fidel's Big Gamble:
(2) If this trend continues, the 21st century will see the emergence of a single general type of economic system, a blended capitalist-socialist system.
 

     IV.  Comparative and Absolute Advantage;
             Utility and Opportunity Cost
             Budget Constraint and Production Possibilities
 

1. Absolute Advantage - Adam Smith
The ability to produce something with fewer resources than other producer uses.
Absolute advantage can be natural or acquire. Acquired in the product technology or acquired in the process technology.
It exits when an economy, firm or individual can produce more per unit of input than other in the production of the good or service under consideration.
When an economy or individual can produce more per unit of inputs than others in the production of the goods and services considered.

E.G.:
  Wheat     Cloth
U.S.  100     75
U.K.  60     90

Problems: arbitrage, resource allocations, prices, productivity of resources, etc.

2. Comparative Advantage: The ability to produce something at a lower Opportunity cost. Than other producers face. E.g. fruit prickly cactus and leaves for diabetes.
Comparative advantage in the production of a g/s occurs for an economy, firm or individual if the opportunity cost of producing that g/s is lower that economy, firm or person than any other.
It is the ability to produce a good or a service relatively less expensive and with less economic resources than anyone else. ( low opportunity cost)

It is the ability to produce a good or a service or perform an activity at a lower Marginal Opportunity Cost than any other.

E.G.:
  Wheat     Cloth
U.S.  60     40
U.K.  10     20

If the US gives up I yd. of clothing; it can produce 11/2 bushels of wheat.
If the US gives up I wheat; it can produced 2/3 yds.
If UK gives up I wheat; it can produce 2yds of clothing.
If UK gives up 1 yd; it can produce only ½ bushel of wheat.

Learning by doing gives comparative advantage to companies or individuals.

3. Utility:
It is a measure of satisfaction received from possessing or consuming G/S. Individuals behave to maximize their utility.
People tend to compare perceived costs and benefits of alternative choices and select those that they believe gives them the greatest benefits, happiness, satisfaction or utility.
Total Utility: is the total amount of satisfaction. Combination of G/S or inputs that will give total satisfaction.
Absolute Vs. Relative Prices
Average Utility: is the satisfaction per unit
Marginal Utility: The extra utility derived from consuming, using or possessing one more unit of G/S or input.
M.U.= Given the quantities of G/S produced or consumed, given the consumer's taste, preference, etc; successive additional units to the production or consumption process eventually yields even smaller additions to the total utility.
Util: Units of utility unique to individuals.

E.G.:
Limited resource: $850.00
Rent  Utility  Food  Clothing  Medical  Misc.
100(10) 95 (2)  90 (3)  89 (4)   80 (7)   75 (8)
0  80 (7)  85 (5)   83 (6)   70 (10)  74 (9)

4. Opportunity Cost:
1. The relevant costs and relevant revenues are the expected incremental or additional costs incurred and the expected incremental benefits of a decision that matter.
Marginal cost: is the additional cost to you over and above the cost that you have already incurred.
This means eliminating sunk costs or cost that already has been incurred.
Marginal Benefit: additional benefit above and beyond you have already incurred.
Opportunity Cost: is the basis of benefit / cost analysis. It is the benefit forgone or the cost of the next best alternative you have chosen.
It is the highest value that would have been received if the factors of production have been employed elsewhere. The cost of using resources for certain purpose, measure by the benefits and/or revenues given up by not using them else where. Deals with making choices and efficiently. What you give up and what you may be getting. Weight alternatives and balance them.
The value of best forgone alternative by choosing a particular activity.
Opportunity Cost is the highest valued alternative that must be forgone when a choice is made.
Trade Offs: The given up of one G/S or activity in order to obtain some other g/s or activity.
 

V. The Production Possibilities Curve: Economic Reasoning, Trade, and Economic Systems
Every working day in mines, factories, shops and offices, on farms and construction site across the USA 131 million people produce a vast variety of G/S worth over $30 billion . The qties. Of g/s that can be produce are limited by our available resources and technology.
This limitation is described by the PPF and Budget constraint
Production Possibility is the boundary between those combinations of g/s that can be produce and those that can not. Two goods, at the time, hold qty. produce, and prices.
 

Production of soda by Coca Cola and tapes by 3M..
Production of tapes and sodas with the given resources 15 sodas in the y (vertical) and 5 tapes in the X axis or horizontal in the millions a month.
PPF shows limits of production, we can not attain the points outside the frontier even if they are efficient. They are points that can not be satisfy.
All of the points inside and on are attainable but only the ones on are efficient.
Suppose that the typical month, 4 million tapes and 5 million bottles of soda are produce.

 Possibility   Tapes (millions/month)   Soda (millions/month)
a                    0                                 15
b                    1                                 14
c                    2                                 12
d                    3                                 9
e                    4                                 5
f                     5                                 0
 

If qty. of sodas increase in production, the tape production decrease. If sodas increase by 15 then tapes dries up.
Production Efficiency: Can not produce more tapes unless give up sodas. If we are in a point inside then the production is inefficient Resources are idle when they can be use.
Misallocation: resources are assigned to tasks for which they are not the best match.

Tradeoff: give up something to obtain something else.
Can produce more sodas only if we give up tapes]
President wants to spent more in health care than education suggesting a tradeoff. More health care or education and less national defense.
More study for less leisure or sleep
more conservation of wildlife for less paper.
Trade offs involve OPPORTUNITY COSTS

Opportunity Costs:
the highest value of alternatives forgone.
PPF along there are only two goods, so there is only one alternative. Forgone some quantity of the other good.
Given the current resources and technology, we can produce more tapes only if produce less sodas.
The opportunity cost of producing more tapes is the number of bottles of coke we must forgo. The opportunity cost of producing more coke is the quantity of tapes not produce.
Opportunity Cost is a RATIO: The decrease in the quantity produced of one good divided by the increase in the quantity produced of another good as move along the frontier.

Increasing Opportunity Costs The opportunity costs of producing tapes increases as the quantity of producing tapes increase. It is reflected in the shape of the PPF curve which bows out.
That is b/c all the resources are not equally productive in all activities
Productive workers with many years of experience for Coke are very good at producing sodas but not very goos at making CDs. So if we move these people from Coke to 3M we get a small increase in the quantity of tapes but a large decrease in the production of sodas.
Similarly, plastic engineers and production workers who spent many years at #m are good producing tapes but not so good in producing sodas
 Example:
 Production of food and production of Health care. Skillful farmers and productive land for farming best doctors, nurses and less fertile land to health care.
If we move fertile land and tractors to hospitals and ambulances and ask farmers to become hospital porters, the production of food drops drastically and the health care is small. The opportunity cost of a unit of health care rises and the opposite if we shift doctors to be farmers.

A. The production possibility table.
1. Every decision has a cost in forgone opportunities-its opportunity cost.
2. Opportunity cost can be seen numerically with a production possibilities table- a table that
lists a choice's opportunity costs by summarizing what alternative outputs you can achieve with your inputs.

a. An output is simply a result of an activity.
b. An input is what you what you put into a production process to achieve an output.
c. Much of what managers of businesses do is make decisions that involve trade-offs .

The Budget Constraint:
It is the consumer's PPF. Exactly the same analysis but for consumers. It is the graphic representation of the opportunity cost but it remains constant through the function and therefore a straight function.
Budget Constraint represents graphically all possible combinations of two goods or two services that can be purchased with the given amount of money over a fixed period of time.
- It is a straight line on a diagram showing all combinations of commodities that a householder may obtain if s/he spends a given amount of money at fixed prices over a period of time.
Constraints/ limitations/ assumptions:
 1. Consumer will have limited amount of income
 2.  Consumer will choose only between two G/S or commodities
 3 Prices of the commodities will be fixed
 4. Time will be fixed

Example:
Y = $30.00   Pizza     Soda
Six pack of soda = $3.00 0 ------- 10
Pizza = $6.00   5 ------   0

Consumption Possibilities  Pizza   Soda
 a    0   10
 b    1   8
 c    2   6
 d    3   4
 e    4   2
 f    5   0

Y = income
Pp = $6
Ps = $3    Y =Pp *Qp + Ps * Qs
Qp = quantity of pizzas
Qs = quantity of sodas

The PPC and BC do not tell which one is the best combination just all
the possible combinations.
- Exchange possibilities: arises when the opportunity costs of self supply differs among those who might engage in exchange.
A. Anything below the BC is the opportunity set which are feasible combinations but not efficient. Attainable but not efficient
B. Anything on the BC is attainable and most efficient
C. Anything above is efficient but not attainable.

If any of the variables change then the BC will shift. I.e. Y increases BC shifts parallel.

3. The production possibility curve. Is graphical representation showing the maximum quantity of g/s that can be produce using limited resources to the fullest extend possible
- It shows maximum combination of production of two G/S, given limited economic resources, limited income, costs and price over time , that can be produced.
- Shows combinations of the amount of various G/S that society can produce with fixed amount of resources in a given time.
- Represents the maximum amounts of G/S that can both be produced within the economy's given resources and assuming that all the resources are fully utilized.
- Represents combinations of goods and services that the full employment use of society's resources can produce during a particular period of time.
Constraints / limitations / assumptions:
 1. Two inputs or outputs
 2. Limited budget
 3. Cost of production ( resources and tech)
 4. Fixed final price of G/S
 5. Fixed time

ISOCOST = PPF : shows all possible combinations of inputs that can be purchase with a given amount of income . It is Concave
ISOQUANT = Indifference Curves: A curve depicting the various input combination capable of producing a given level of output from given amount of resources at fixed time. Convex
a. A production possibility curve is one that measures the maximum combination of outputs that can be achieved from a given number of inputs.
(1) It slopes downward from left to right .
(2) The production possibility curve not only represent the opportunity cost concept, it also measures the opportunity cost.
b. The production possibility curve demonstrates that:
(1) There is a limit to what you can achieve, given the existing institutions, resources, and technology.
(2) Every choice made has an opportunity cost. You can get more of something only by giving up something else.
c. Increasing marginal opportunity cost.
The amount of one good or a service that must be given up to obtain one additional unit of another G/S not matter how many units are being produced!
(1) The production possibility curve is generally bowed outward ( Concave)since some resources are better suited for the production of some goods.
(2) That some resources is better suited for the production of some goods lies behind the concept of comparative advantage to be better suited to the production of one good than to the production of another good. Resources are not perfectly interchangeable or economic resources are not completely adaptable from one another i.e. cost of training.
(3) The principle of increasing opportunity cost states that opportunity costs increase the more you concentrate on the activity. In order to get more of something, one must give up ever-increasing quantities of something else.   The opportunity cost rises as more of a particular commodity is produced.
Increasing cost: as units of a G/S production rises, larger and larger sacrifices of another are required.
d. Comparative advantage, trade, and the production possibility curve.
(1) When individuals trade using their comparative advantages, their combined production possibility curve shifts out.
(2) The argument that the division of labor and trade makes individuals better off also hold for countries.
(3) If any of the constraints change ( price, income ) the PPP changes 3 * 3 = 27 possibilities
(4) PPF shifts out with technological advances or economic growth ( the output increases associated with the shift of the PPF).

e. Efficiency.

(1) In our production, we would like to have productive efficiency- achieving as much output as possible from a given amount of inputs or resources.

(2) Efficiency involves achieving a goal as cheaply as possible. Efficiency has meaning only in relation to a specified goal.

(3) Any point within the production possibility curve represents inefficiency-getting less output from inputs which, if devoted to some other activity, would produce more output.

(4) Any point outside the production possibility curve represents something unattainable, given present resources and technology.

f. Distribution and production efficiency.

(1) An increase in output that goes to one person and not to anyone else would not necessarily be efficient in some societies.

(2) In our society, where generally more is preferred to less, many policies have relatively small distributional effects.

4. Some examples of shifts in the production possibility curve.

5. The production possibility curve and economic systems.

a. The production possibility curve presents choices in a timeless fashion but most choices are dependent on previous choices made sequentially with a time dimension.

b. Sequential decisions can best be seen within a framework of a decision tree-a visual description of sequential choices.

(1) Low-level choices are choices that involves general acceptance of the path one has taken.

(2) Institutional choices are choices that make major institutional changes.

(3) Systemic choices are fundamental choices that determine the set of institutional and low-level choices available.

c. All decisions are made in context- what makes sense in one context may not make sense in another.

d. Because decisions are contextual, what the production possibility curve for a particular decision looks like depends on existing institutions, and the analysis can be applied only in the institutional and historical context.

6. The production possibility curve and tough choices.

a. Politicians make promises as though the production possibility curve did not exist or that the economy can operate outside the economy's production possibility curve.
 

                                                             V.  STATISTICS, THEORY AND GRAPHS

 1. Economists, on the other hand, continually point out that seemingly free lunches often involve significant costs thus earning for themselves the nickname, the dismal science.
Benjamin Disraeli ( British Prime Minister); There are three kind of lies; Lies, damned lies and statistics.
One of the most powerful ways of conveying statistics and information is with pictures or graphs.
Graphs can tell lies but the right graph can not lie! Indeed it reveals data and can help to think and understand relationships.
There are three types: Bar or charts, pies , and lines

Graphs: Diagrams showing how two or more variables or set of data are related to one another over a particular period of time ( static ) or over time ( dynamic ).
Economic graphs are divided into four quadrants; divided by ordinates (X) and coordinates
 ( Y). The interception of the X and Y is the point of Origin ( 0, 0 ).  Can label any point within
the quadrants.  Demand and Supply is on ( - , + ) .
Graphs have horizontal and vertical axis both on scale of numerical values.
Qd coffee   f( P coffee + Non price)

Functions: Relationships of variables to determine values. Variables are represented in the form of functions. I.e. Demand for coffee is function of price plus other variables such a taste, income, price of other commodities, however, the graph can only represent two variables

A two dimensional line graph shows changes of variables over time.
A Graph shows how two or more set of data or variables are related to one another over a particular time period ( Static) or through ( Dynamic).
Example:
AD = AS   Y = 50 + .8Y + 50
Y = C + I   Y = 100 + .8Y
C = 50 + .8Y   Y - .8Y = 100  .2Y = 100   Y = 500
I = 50

I.e. Farmer : fertilizer; corn/bushels. Fertilizer is independent ( on Y axis) and corn is the dependent ( on X axis).

 2. Variables: change value over time and represented by letters. Represents a quantity as a distance on a line
Endogenous variables: Those variables represented within the system and have direct effect on the relationship.
Exogenous variables: Those variables which are not depict on the graph and affect the relationship indirectly.
Independent Variables: exist independent without reference to others. Appear on the right side of the equation and depicted on the X axis or horizontal. The value of the variable does not depend on the value of the other variable.
Dependent Variables: Appear on the left side of the equation, change when the independent variables change and are dependent on other variables to get values. Depicted on the Y axis or vertical. The value of the variable depends on the value of the independent variable.
Parameters: constant value; i.e. a number
Graphs depict two economic variables to represent third variables.  THE FURTHER FROM THE ORIGIN, THE BETTER OFF WE ARE, NUMBERS AND VALUES INCREASE ALONG THE AXIS.
I.e. How does the quantity of Tommy Jeans change as the price changes?
P = independent variable
Q = dependent variables (depends on the price).

Price   Quantity   Qd= 100 - 6P
$58   0    P = 0 , Q = 100
$45   3000    P = 1 , Q = 94
$37   5000    P = 2 , Q = 88
$$29   7000    P = 3 , Q = 82     P increases and Q decreases
$18   8000    P = 5 , Q = 70

Qs = 100 + 6P

 3. Slope: it is the rate of change of a particular function ( not Elasticity!). Indicates the inclination and direction of function and how flat or steep it is. Steepness of the curve.
Scope = change of vertical /change in the horizontal or change Y/change of X or Rise over the Run.

Slopes could be continues or non continues and Linear or Non Linear.
Linear Functions: may be straight and non straight functions and can determine the direction by measuring the slope.
Straight function has the same slope throughout the function
Non straight function has different slopes throughout the function.

Slopes of Straight Functions:
 1. Positive: Values of related variables move in the same direction. X and Y move in the same direction; variables are directed related, slopes upwards to the right.

 2. Negative: The value of related variables move in opposite direction. variables move in opposite direction; variables are inversely related. As one variable increases, the other decreases and vice verse. Slopes downwards to the right.

 3. Infinite Slope: parallel to the vertical axis. X ( horizontal) does not change and the Y (vertical) changes to the infinite. Undefined b/c can not divide by zero.

 4. Zero Slope: Straight function parallel to the horizontal ( X) axis; the Y variable remains constant and the X variable changes to the infinite.

Non Straight Functions: Have different slopes throughout the function. Relationsships between two variables which the slope of the curve showing relationships changing as the value of one of the variables change; slope changes as the value of variables change.
Note: a point has no direction and therefore, no slope. To determine the slope of a non straight function at any point; a tangent straight function   that touches one and only one point of the non straight function can be drawing. The tangent function touches one and only one point of the function
A circle F(X) = R2 or x2+ y2 has all the four slopes.
 

 4. Ray: is any function which goes through the origin. The ray which bisects the quadrants into two 45 degrees is the 45 degree ray with slope of one. Anything below is less than one and anything above is greater than one.

 5. Scatter Diagram: Systematic relationship of variables. Any function represented is a scatter diagram measuring the relationships between the variables. Plot the data to show the average relationships; draw a line to best fit and determine the function. Data may be distorted.
 

 6. Empirical Data: data is the information we gather which is represented graphically.
  a. Cross - sectional data: Studies variables at any instant of time ( static). Time is an exogenous variable and does not change and it is not represented on the graph.

  b. Time Series Data: Represents variable over different periods of time
( dynamic).Graph shows only one variable as a function of time. Time is endogenous and is a variable on the graph ( horizontal axis).

 7. Pitfalls of graphing:
  a. Have to look at how variables are depicted
  b. Never omit the origin
  c. Do not exaggerate the data
  d. Each variable can be measure in different units but the units must be the same       within the variable
  e. Never try to measure the beginning or end of a function
  f.  Do not distort the data

  Production; Consumption and Definitions.

Economics: The conscious application of human efforts to use limited resources.
Consumption: the act of buying G&S.
Production: The act of making G&S
Market:
- An institutional arraignment under which buyer  and sellers can exchange some quantity of G&S at a mutually agreeable price.
- Where potential buyers and sellers meet.
- Formed by a common group of sellers who are selling in competition for the business of a common group of buyers.
- Market is determine by the Cross Elasticity.
- Markets determine commodity and resource prices in absolute (price of G&S in terms of money) and relative terms ( price of a G&S in terms of other G&S.
Industry: sellers that produced a given product.
Firm: where production takes place.
-  where market coordination and managerial cooperation takes place.
Market coordination: the coordination of economic activities and uses the price system to transmit information and provide incentives.
Managerial Cooperation: is the communication and coordination of the economic activities of the firm.
Plant: is where actual production takes place.

Functions of the Market:
Functions of the market itself through the interactions of buyers and sellers and functions of the market through the government to attain the ultimate goals of society through competition in a market economy.
Market along Input /Output:
Two types of market inputs:
 Preference articulation: Buyers and sellers communicate with each other and articulate the scarcity constraints.
 Economic Communications: Buyers and sellers communicate how market should work through opportunity cost. Production Possibilities, utility, and comparative advantage.

Four areas of output for the market:
 What G&S shall be produce and in what amounts
 How should G&S be produce
 Who shall get the G&S produced
 How shall flexibility be maintain through the changes of time

Three inputs - Government view:
 Preference articulation: citizens, interest groups, lobbyists, etc.
 Preference Aggregation: Ideologies economics plus other social sciences. I.e. political
 platforms or parties.
 Political Communications: media

Three Outputs - Government View:
 Rule Making: Congress, legislative Assembly
 Rule Application: Enforcement, executive branch
 Rule Adjudication: interpretation, judicial branch

Consumer Goals in the Market:
1. Plan for a particular period of time in the future
2. Measurable goals, quantity of goods and services which they buy within a particular period of      time.
3. Look at expectations of changes in prices.
4. Derive satisfaction from using a variety of G&S.
5. Definite preference for more than less.
6. Desires high quality, large quantities and low price.

Limitations of Consumers:
Time, Wealth and resources, and difficult to control prices.

Goals of Producers in the Market:
1. Maximize profit
2. Minimize cost
3. Market power: geographic and product.
4. Minimize risk
5. No to attract attention of competitors and government.
6. Welfare of society.
7. Large quantity, high quality and high prices.

Limitations of Producers:
Limited resources, budget and time.