Week1-082 - up to attain something or satisfy a want COST COST MODELS(or THEORY MODELS(or THEORY ± A model is a simplified description of reality

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1 Lecture Topics ± Define economics (it’s about the allocation of scarce resources) ± Introduce economic basics ± Scarcity, Choice, Cost ± Cost-Benefit Principle ± Marginal Analysis and Decisions Microeconomics. .. Microeconomics. .. The study of how households and firms make decisions and how they interact in markets. Macroeconomics. .. Macroeconomics. .. The study of economy-wide phenomena, including inflation, unemployment, and economic growth. Scarcity . . . never enough time, money, or energy to do everything we want or have everything we want. Scarce resources: labor land capital technology time
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2 SCARCITY SCARCITY CHOICE The existence of scarcity forces us to choose. $35 Oakland $25 Waterfront $10 Benefit ??? Cost SCARCITY SCARCITY CHOICE CHOICE ± The cost of something is what you give up to get it. ± Choosing one alternative over another has a cost associated with it. ± Opportunity cost Opportunity cost is the highest valued alternative that must be given
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Unformatted text preview: up to attain something or satisfy a want. COST COST MODELS (or THEORY) MODELS (or THEORY) ± A model is a simplified description of reality used to understand real life situations. ± Economists use the cost/benefit principle as an abstract model of how a rational individual would choose among competing alternatives. 3 Cost/Benefit Subtleties ± Absolutes not proportions that matter ± Optimal decisions are made at the margin ± Ignore sunk costs Summary ± Economics is a social science studying human behavior, in particular the way individuals and societies choose among the alternative uses of scarce resources to satisfy wants and needs. ± Limited resources force people to face tradeoffs. ± Choosing one alternative over another generates a cost—opportunity cost ± Optimal decisions are made at the margin....
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This note was uploaded on 04/29/2008 for the course ECON 0100 taught by Professor Kenkel during the Spring '08 term at Pittsburgh.

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Week1-082 - up to attain something or satisfy a want COST COST MODELS(or THEORY MODELS(or THEORY ± A model is a simplified description of reality

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