Principles of Economics Chap 1, 2, and 3Introduction 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 servicesDistributing prohibited | Downloaded by Matt Rabah ([email protected])lOMoARcPSD|2666066
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