Ch 1-3 Notes.pdf - lOMoARcPSD|2666066 Principles of...

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Principles of Economics Chap 1, 2, and 3 Introduction to Microeconomics (University of Chicago) Distributing prohibited | Downloaded by Matt Rabah ([email protected]) lOMoARcPSD|2666066
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Chapter 1: Ten Principles of Economics - ScarcitT → The limited nature of society’s resources - Economics → The study of how society manages its scarce resources - How people spend, save, work, lnvest - What and how much they buy - Prlnclple 1: People Face Trade-offs - One tradeoff common ln economlcs ls “efflclency vs equallty (equlty) - EfficiencT → Society getting the most it can from its scarce resources - EqualitT → Better said as equity, is distributing economic prosperity uniformly amongst all members of society - Efflclency ls the slze of the economlc ple, equallty ls the lndlvldual sllces of the ple - These two work ln confllct, the more one seeks for equallty the smaller they make the ple - Prlnclple 2: The Cost of Somethlng ls What You Glve Up to Get lt - OpportunitT Cost → What you give up to get something else - Not just the prlce of the ltem but the cost of what else you could have done wlth lt - Prlnclple 3: Ratlonal People Thlnk at the Margln - Rational People → People who systematically and purposefully do the best they can to achieve their objective - Marginal Change → A small incremental adjustment to a plan of action - Adjustments made around the edge of what you are dolng. Not drastlc dlfferences but sllght varlances - People compare Marglnal Beneflt wlth Marglnal Cost - Thls means you do not lnclude sunk cost - Prlnclple 4: People respond to Incentlves - Incentive → Something that engenders someone to act - They can have some unlntended consequences because lt can have effects on the buyer, seller, and surroundlng communlty - Prlnclple 5: Trade Can Make Everyone Better Off - Trade allows for speclallzatlon, allowlng you to work at what you do best, and trade for other ltems whlch you are not as efflclent at produclng - People can buy a greater varlety of goods at a lower cost - Prlnclple 6: Markets are Usually a Good Way to Organlze Economlc Actlvlty - Market EconomT → An economy that allocates resources through the decentralized decisions of many frms and households as they interact in the market for goods and services Distributing prohibited | Downloaded by Matt Rabah ([email protected]) lOMoARcPSD|2666066
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