Economics Chapter 1 notes.docx

Economics Chapter 1 notes.docx - Economics Chapter 1 Ten...

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Economics Chapter 1: Ten principles of Economics Scarcity – Limited nature of societies resources Economics – the study of how society measures its scarce resources Economists study how people make decisions and how people interact with one another as well as analyze forces and trends that affect the economy Economy – group of people interacting with each other as they go about their lives. The behaviour of an economy reflects the behaviour of the individuals who make up the economy Principles of individual decision making: 1. People face trade offs Making decisions requires trading off one goal against another (clean environment & high level of income) Efficiency – Property of society getting the most it can from its scarce resources ( size of the economic pie) Equity – property of distributing economic prosperity fairly among the members of society ( how the pie is divided into pieces) 2. The cost of something is what you give up to get it Opportunity cost – whatever must be given up to obtain some item Example: Going to university. You gain knowledge but you lose the wage you would earn if you weren’t university 3. Rational people think at the margin Rational people – people who systematically and purposefully do the best they can to achieve their objectives (compare marginal benefits and marginal costs) MARGINAL THINKING . How
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