10/19/2011 Class 20

Why does Rizzo break the rule and let more students enroll in the class?
There're situations where intimately we actually do have the knowledge to act on the information that we have and improve outcome. Rizzo knows that some students will quit and adds a more student will benefit to the student.Rules set by the school are also not economics ones.

Fed Ex
Why do we have confidence in Fed Ex, not worrying that our privacy would be exposed or packages get lost?
Feedback loops: If Fed Ex fails, it will lose customers and reputation.
Competition is also a part, pushing Fed Ex to maintain a high quality of services.Feedback loops works well when people feel guilty of doing a bad job.

Trade and exchange
1.What to produce
2.How to produce
3.Allocation systems
Production process: Input----"Black box"----Stuff
Inputs: factors of production
(1)Land
any physical object that preexists before we get to the earth
difference between economic resources and natural resources: When people figure the use of a resource, it will become economic resource
(2)Labor
the number of bodies
(3)Capital
something that first must be produced for the purpose of producing something else
Two types of capital:
1> physical
2> human capital: anything human do to augment natural ability

Ways to engage in production process
(1)Self-sufficiency
It's not economic activities. Doing things by yourself reduces economic activities.
(2)Specialization and exchange
Patterns of sustainable specialization and trade
(3)Discovery
technology changes our way of doing things
We need time to adapt to the new technology, in the process there may be economic stagnation.

Reasons why people think bad about trade
(1)Most trade doesn't create new things
(2)People view trade as exploitive
Why do people produce? To get wealth. Then what's wealth?
Wealth is whatever people value
Economic growth derives not from increasing production of things but from increasing production of wealth.
Growth happens when a society gets more with the same amount of input or we use less input to get the same amount of stuff.

Voluntary trades happen only when people can get extra value
Example: I have two Kirby cards, which is worth $200 each. My friend Jeff has a Beyonco card, which only worth $0.02  But in fact I value B more than K, and Jeff values K more than B
Suppose I lose 1000 bucks with a card missing, but when I complete the transaction, I get 8000 bucks of value. So the wealth gained is $7000
The initial wealth of me and Jeff is 1200.02 bucks, after the trade, the wealth is  $8200, we create 6999.98 bucks of wealth.