Chapter 1 - Chapter 1 Thinking Like an Economist Scarcity...

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Chapter 1 Thinking Like an Economist Scarcity Principle : Trade off between wants and limited resources * leads to Cost Benefit Principle The Cost-Benefit Principle : An individual should take an action if, and only if, the extra  benefits from taking the action are at least as great as the extra costs. Economics : the study of how people make choices under conditions of scarcity and the  results of these choices for society * Science of choice (results of these choices) Rationality Assumption : well-defined goals, try to fulfill these goals (NeoClassical Model) Optimal Decision : benefit of activity x is greater than the cost of activity x * B(x) > C(x) => do it * B(x) – C(x) = positive value * Economic Surplus (happiness) Reservation Price : highest prices someone is willing to pay to obtain a good or service * RP – AP = Economic Surplus Economic Surplus
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This note was uploaded on 04/29/2008 for the course ECON 160 taught by Professor Khan during the Spring '08 term at Hobart and William Smith Colleges.

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Chapter 1 - Chapter 1 Thinking Like an Economist Scarcity...

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