econ1_week1

econ1_week1 - 1 Econ 1 Lecture 1 Chapter 1 Ten principles...

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1 Econ 1 Lecture 1 Chapter 1 Ten principles of economics Economy, decisions and scarcity. Economics: The study of how society manages its scarce resources. Economists study: How people make decisions 1. People face trade-offs 2. The cost of something is what you give up to get it. 3. Rational people think at the margin. 4. People respond to incentives. 1. People face trade-offs. To get one thing we usually have to give up another thing that we like. Students Societies
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2 2. The cost of something is what you give up to get it. Making decisions requires comparing costs and benefits Opportunity cost. 3. Rational people think at the margin Firms and consumers make decisions Marginal changes : Small, incremental adjustments to an existing plan of action.
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3 People make decisions by comparing benefits and costs at the margin. 4. People respond to incentives Incentive : something that induces a person to act. Exercise You are selling your 1996 Mustang. You have already spent $1000 on repairs. At the last minute, the transmission dies. You can pay $600 to have it repaired, or sell the car “as is.” Two scenarios, decide if the transmission needs to be repaired: A. Blue book $6500 if transmission works, $5700 if it doesn’t B. Blue book value is $6000 if transmission works, $5500 if it doesn’t Policymakers should always consider incentives because policies change costs and benefits people face and, therefore, alter their behavior.
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4 How people interact 5. Trade can make everyone better off. 6. Markets are usually a good way to
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econ1_week1 - 1 Econ 1 Lecture 1 Chapter 1 Ten principles...

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