Micro-Chapter 1 Outline

Micro-Chapter 1 Outline - Thinking Like An Economist...

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Thinking Like An Economist Chapter 1-Frank and Bernanke Economics and Scarcity Economics is the study of how people make choices under conditions of scarcity and of the results of those choices for society Scarcity occurs when we want more of any good than we can have. It also can be said to occur any time a good is not free. The Scarcity Principle Wants and needs are boundless, but resources are not. Therefore, having more of one good usually means having less of another. Scarcity requires trade-offs Resources include land, labor, capital and entrepreneurial ability. No Free Lunch Principle The Cost-Benefit Principle An individual, firm, or society should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs. Should Carson eat one more bowl of ice cream? Should Bill Gates pick up a $100 bill lying on the sidewalk? Economic Surplus Economic surplus is the net benefit of taking an action; the benefit of taking an action minus the cost of taking the action Consumer surplus is the difference between what a good is worth to the consumer and the price paid Producer surplus is the difference between the amount the producer is willing to sell the good for and the price the producer actually charges Opportunity Cost Opportunity Cost is the value of your second best alternative that you forgo once you have chosen a good or activity Opportunity cost is subjective and different for different people and may be different in different circumstances There ain’t no such thing as a free lunch!
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