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Unformatted text preview: [Thursday, January 10]- What are we studying? Choices- Purpose of Economics: to create models to analyze and predict the behavior of people that make choices Model : a simplified representation of a real situation that is used to better understand real life situations- (Objective) to come up with an economic system that contains incentives that encourage choices that maximize total social benefit. Economics: the study of how individuals choose to allocate scarce resources to best satisfy their unlimited wants Scarcity : condition whereby the goods and services available to people are limited to their wants for them (not the same thing as shortage) Scarce good: good for which you can NOT get all you want at zero cost (not price) Free Good: good for which you CAN get all you want at zero cost. EX: air COST vs. PRICE (what comes out of producers pocket vs. what goes in their pocket) Cost: the sacrafice associated with making a choice; in a standard market transaction it is paid by the...
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