MICRO_STUDY_GUIDE

MICRO_STUDY_GUIDE - Peter O'Dowd MICRO STUDY GUIDE Chapters...

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Peter O’Dowd MICRO STUDY GUIDE Chapters 1,2,(3),4,6,8 Economics and Economic Reasoning Economics – study of how humans coordinate their wants and desires, given the decision- making mechanisms, social customs, and political realities of the society. Scarcity – the goods available are too few to satisfy individuals’ desires. Economic reasoning = making decisions on the basis of costs and benefits Marginal cost – the additional cost to you over and above the costs you have already brought upon yourself. That means not counting sunk costs—which is costs that have already been incurred and cannot be recovered (already paid tuition so go to fuckin class because the marginal cost of going to class does not include tuition). Marginal benefit – additional benefit above what you’ve already resulted in (the marginal benefit of reading this chapter is the additional knowledge you get from reading it…if you know this chapter already, there is no marginal benefit of reading it now) When comparing these two, follow the economic decision rule: o If the marginal benefits of doing something exceed the marginal cost, do it. o If the marginal costs of doing something exceed the marginal benefits, don’t do it. Opportunity Cost – The opportunity cost of undertaking an activity is the benefit missed by undertaking that activity. The benefit forgone is the benefit that you might have gained from choosing the next-best alternative. To obtain the benefit of something, you must give up (forgo) something else—namely, the next best alternative. The opportunity
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MICRO_STUDY_GUIDE - Peter O'Dowd MICRO STUDY GUIDE Chapters...

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