ECO365 Week 1 Lecture Notes

ECO365 Week 1 Lecture Notes - Chapter 1 I What economics is...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 1 I. What economics is About. A. Economics is the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of that society (Chapter Objective 1a). One of the key words in the above definition is “coordination.” B. Three central coordination problems any economic system must solve are ( Chapter Objective 1b ): 1. What, and how much, to produce. 2. How to produce it. 3. For whom to produce it. C. Since individuals want more than can be produced, scarcity – what occurs when the goods that are too few to satisfy individuals’ desires—ensues. Scarcity, a relative term, is prevalent in economics, and is constantly changing. II. In order to understand what economics is about, your students need to learn five important things about economics: A. Economic reasoning , or how to think like an economist, making decisions on the basis of costs and benefits, is the most important lesson your students will learn from this book. Economic reasoning once learned is infectious. It provides a framework within which to approach a question. B. The e conomic terminology that economists use to communicate. C. Economic insights economists have about issues, and theories that lead to those insights. D. Information about economic institutions . E. Information about the economic policy options facing society today. III. A guide to economic reasoning. A. Since every choice has costs and benefits, decisions are made by comparing the two. The decision rule is that if the marginal benefits of doing something exceed the marginal costs, do it. Similarly, the decision rule is that if the marginal costs of doing something exceed the marginal benefits, don’t do it. B. Marginal costs and marginal benefits (Chapter Objective 2) . 1. The relevant costs and relevant benefits are the expected incremental or additional costs incurred and the expected incremental benefits of a decision that matter. 2. In economists’ jargon, marginal refers to additional or incremental. Think of it as “one more.” Marginal cost , then, is the additional cost to you over and above the costs you have already incurred. 3. This means eliminating sunk costs —costs that have already been incurred and cannot be recovered. 4. Marginal benefit is the additional benefit above and beyond what you’ve already accrued. C. Economics and passion: economic reasoning is based on the premise that everything has a cost. Although economists can be as passionate as the next person, they must squelch this normal human response in order to do their work with objectivity.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
D. Opportunity cost is the basis of cost/benefit economic reasoning; it is a cost of the activity you have chosen measured against the sacrificed benefit of the next-best alternative to the activity you have chosen ( Chapter Objective 3 ). 1.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/02/2009 for the course BUS ECO 365 taught by Professor Unk during the Spring '09 term at University of Phoenix.

Page1 / 21

ECO365 Week 1 Lecture Notes - Chapter 1 I What economics is...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online