Economics 1

Economics 1 - Economics 1 Economics is the social science...

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Unformatted text preview: Economics 1 Economics is the social science concerned with the efficient use of limited or scarce resources to achieve max. satisfaction of human materials and wants Means to satisfy wants are limited, even though we have unlimited desire for goods and services o Called the economizing problem Economizing problem: What can we obtain? o Menu of options available How will we choose? o How will we make a choice from the menu of things we can pick? What criteria? What will we choose? What are the costs and benefits (tradeoffs) of a particular action? To produce more of one thing you need to produce less of another Set of goods that you can obtain is called an opportunity set Q = quantity P = price Alice has $100 to spend on CDs and books. The price of a CD is $10 and the price of a book is $20. Q Book P Book + Q CD P CD =$100 Budget constrains change and move outward along the x axis with price changes Opportunity cost: what we give up or forgo when we make a decision or choice Cost of Dartmouth education Actual $ amount (tuition, books, etc) Opportunity cost: you could be working or enjoying yourself Tradeoff: Great education & better job after Dartmouth Rational Behavior Acting in a self interested fashion which reaps the best net benefits o Net Benefits = Total Benefits Total Costs Maximizing Profit Profit = Revenue Costs o Revenue = (price)(quantity) o Costs = (per unit cost)(quantity) Costs are not limited to financial transactions in economics If something makes you feel bad, that is a cost o If good, it is a benefit Economists like to assign a monetary value on costs and benefits in order to compare the two Sometimes difficult Perceived benefits might be subjective o Smoking makes you feel good Sunk Costs Nonrecoverable expenditures o Setup costs for a factory o Installation charge to turn on electricity is a sunk cost Incentives Rewards and costs that stem from making choices Prices reflect incentives: rewards and costs All decision makers (consumers, businesses, govts, etc.) respond to incentives Marginal benefits Difference between the value of benefits Private vs. Social Benefits Because your actions may have an effect on other people o Pollution from a factory may impose a larger cost the closer an individual lives to the factory, while the factory itself may bear no cost for the cause of production An activity may benefit some while imposing a cost on others...
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Economics 1 - Economics 1 Economics is the social science...

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