ECON 103: Microeconomics (Rustici) Test #1 Lists

Spontaneous Orders

1: Price System (information, in our minds)

2: Money (medium of exchange)

3: Banks (financial intermediaries)

4: Future's Markets (speculation,, speculators stabilize economic system)

5: Stock and Bond Markets (we are invested in it unknowingly, mostly in pension funds) - Primary: public corporation's stock (NASDAQ, NYSE), Secondary - stocks work through to the public

6: Accounting Systems (information).

Economics has 4 Basic Assumptions

1: Scarcity - Want something? Have to make it happen. Mother nature imposes scarcity. Causes prices. Don't confuse with shortages.

2: Only individuals choose (methodological individualism; we control the economy, we create it).

3: Rational Choices - rationality = purpose of the actions.

4: Unlimited Wants: Greed (greedy people live in a world of scarcity driven by choice and the rationality of those choices.

Classical Price Theory Mistakes

1: Logic of an infinite regress in value; explaining prices with prices.

2: Labor was the source of value; labor is not a source of value. Labor Theory of Value - Value is not in past effort, value is in the mind; worth is an appraisal.

3: Intrinsic and Objective view of value. Value is subjective. Subject attaches value to an item.

4: The relevant quantities are wrong. Had no concepts of margins, scarcity imposes margins.

4 Concepts of Subjective Value

1. Human needs.

2. Properties of the object that satisfy our need.

3. Knowledge of the casual connection between 1 and 2.

4. Sufficient command ("accessibility").

5. Scarcity.

Available Quantities: Only 3 Mathematical Possibilities

1. Human needs are greater than available quantities.

2. Not scarce, free goods..plenty of supply ("less than").

3. Are exactly equal to..."transition point"...non-economic good, free good, not scarce (air).

Laws of Factor Pricing

1. Horizontal coordination of value

2. Vertical coordination of value

3. Derived demand

4. Asset specificity (general/specialized assets)

Theory of Value

1. Subjectivism (value of goods imputed from our needs)

2. Values ranked ordinally (magnitude of importance of different ends are unequal)

3. Values attached unequally (magnitude of importance for goods are unequal)

4. Value we attach to a given unit fo a good is based on least important need

Theory of Exchange

1. Reverse valuation

2. Both parties recognize reverse valuation

3. Power to execute the trade

4. Expected benefits are greater than expected costs

Exchange & Values

1. Gift from nature

2. Gift from another person

3. Violence/Coercion

4. Market

Principles of an Auction Model

1. Consumer overbidding (consumers that value good the most, exclude those who value it the least

2. Competitive undercutting (sellers who value good the least, exclude those who value it the most

3. Final exchange price set between limits of max buy and min sell values at the margin

4. As more parties enter exchange setting, limits of price are narrowed

Things Wrong with Mercantilism

1. Economic stability was designed/planned

2. "zero-sum" (winner and loser in trade)

3. Money is wealth of nations

4. Divorcing people from economy