Class Notes

Class Notes - Chapter 1 1/17/2008 12:20:00 PM Scarcity:...

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Chapter 1 17/01/2008 14:20:00 Scarcity: when resources are limited   creating trade-offs Microeconomics: Looking at an economies big picture in detail  o firms o households Macroeconomics: An economies big picture  o inflation rate o unemployment rate Economics: how people make choices 10 Principles in Economics: a. People face trade-offs Ex: A person deciding between spending or saving Ex: A student deciding between going out or studying Society faces the following trade-off: Efficiency: Society is getting the maximum benefits from  its scarce resources; (resources are not wasted; pie  increases) Equity: those benefits are distributed fairly among the  societies members; (pieces of the pie are cut) b. The cost of something is what you give up to get it o Benefits   Costs; (Comparison between the two) Ex: Attending College Benefits – knowledge, good job in future Costs – time, money (tuition) o Opportunity Costs: the opportunity costs of an item is what you give up  to get that item
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c. Rational people think at the margin  o (A rational person would choose 10 dollars over 1 dollar) o Consumers want to maximize their benefits, happiness, or utility  subject to their income and the price of goods o MB – Marginal Benefits o MC – Marginal Costs o If MB > MC, then production will increase o If MB < MC, then production will decrease Ex: The average cost to fly from Mexico to Denver is $500, but  there are still 200 seats available the day of the flight.  A person  offers $200 for one available seat the day of the flight.  Because  the MB ($200) > MC (cost of peanuts, meal, drink, etc.), then  this person will get this ticket at $200. d.
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This note was uploaded on 05/03/2008 for the course ECON 2010 taught by Professor Mertens,wi during the Spring '07 term at Colorado.

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Class Notes - Chapter 1 1/17/2008 12:20:00 PM Scarcity:...

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