chapters 1-3 notes

chapters 1-3 notes - The choices reflect the trade-offs...

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The choices reflect the trade-offs people face because we live in a world of scarcity , which means that although our wants are unlimited, the resources available to fulfill those wants are limited. Economics Economic models are simplified versions of reality used to analyze real-world economic situations. A market People are rational People respond to economic incentives Optimal decisions are made at the margin People are Rational People Respond to Economic Incentives Optimal Decisions are Made at the Margin Economists use the world marginal to mean an extra or additional benefit or cost of a decision Economists reason that the optimal decision is to continue only activity up to the point where the marginal benefit=marginal cost; MB=MC Society faces trade-offs: producing more of one good or service means producing less of another good or service How will the goods & services be produced? (ex: firms face trade-offs between using more machines or more workers)
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Centrally planned economy: government decides on how economic resources will be allocated Market economy: Mixed economy: most economic decisions result from the interaction of buyers & sellers in markets, but in which the government plays a significant role in the allocation of resources Productive efficiency: the situation in which a good or service is produced at the lowest possible cost Allocative efficiency: state of the economy in which production reflects consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. Voluntary exchange:
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chapters 1-3 notes - The choices reflect the trade-offs...

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