Chapter_1_short_version

Chapter_1_short_version - Chapter 1 ECONOMICS AND ECONOMIC...

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ECONOMICS ECONOMICS AND AND ECONOMIC ECONOMIC REASONING REASONING Chapter 1 Chapter 1
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1-2 What Economics Is What Economics Is Economics is the study of how human beings coordinate their wants and desires, given the decision- making mechanisms, social customs, and political realities of the society.
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1-3 Coordination in Economics Coordination in Economics Any economic system must solve three coordination problems: What, and how much, to produce. How to produce it. For whom to produce it.
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1-4 Economic Reasoning Economic Reasoning Economic reasoning is making decisions by comparing marginal costs and marginal benefits. Marginal means “additional” or “incremental” Marginal cost – the additional cost over and above costs already incurred. Marginal benefit – the additional benefit above and beyond what has already accrued. Sunk cost - costs that have already been incurred and cannot be recovered.
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1-5 The Economic The Economic Decision Rule Decision Rule If the marginal benefits of doing something exceed the marginal costs , do it. If the marginal costs of doing something exceed the marginal benefits , don’t do it.
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1-6 Opportunity Cost Opportunity Cost Opportunity cost is the benefit forgone of the next-best alternative to the activity you have chosen. It is always less than the benefit of what you have chosen.
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1-7 Examples of Examples of Opportunity Opportunity Costs Costs Individual decisions The opportunity cost of college includes C Items you could have purchased with the money spent for tuition and books C loss of the income from a full-time job Government decisions The opportunity cost of money spent on the war on terrorism is less spending on health care or education.
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The Economic Problem The Economic Problem Scarcity – the goods available are too few to satisfy individuals’ desires. Scarcity
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Chapter_1_short_version - Chapter 1 ECONOMICS AND ECONOMIC...

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