Topic 1 for ECO 100

TOPIC 1
THE ECONOMIC PROBLEM

Note: the first time you go through each of these topics you should access the following items in sequence.

Our task here is to gain some understanding of what "economics" is about. Contrary to what many people think, it is not primarily about money or business, although such matters do become involved in the subject. Much more fundamentally, economics involves studying the ways human societies have been organized to deal with the simple fact that human wants exceed the means of satisfying all of them.

The big question in economics is how we can organize our use of scarce resources to satisfy the most urgent and important of our wants. We will identify two simple theoretical models which offer a solution -- one involving political (group) decision-making, the other relying on the spontaneous interaction of buyers and sellers in markets. As we will see, applying these models in real-world situations is never easy, especially when we try to implement hybrid systems combining elements of both!

Specific Learning Objectives:

1. To understand the basic relationships between resource scarcity, the scarcity of want-satisfying goods and services, and why we have to establish some system to determine how scarce resources can be allocated among alternative uses. In particular, the concept of production possibilities must be clearly understood, along with its implications for how the relative costs or values of different goods are established.

2. To establish that there are alternative systems by which such resource allocation functions may be performed, one of which is the system of "market economy". The distinction between "markets" and a "market economy" is particularly important.

3. To fit the evolution of alternative systems of allocation into a historical framework. The important point to be made here is that economic theory, economic history, and economic policy issues are all interrelated and not easily reduced to simple technical principles. Indeed, you may want to begin thinking about whether we will ever have a theory of economic behaviour that is "valid" for all places and times. Was the Russian novelist Zemyatin right when he said, "Today's truth becomes tomorrow's error?"