Chapter01_H - 2. Opportunity Cost 3. Marginal thinking 4....

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1 6E:001 Principles of Economics Spring, 2008 Chapter 1 – What is Economics 2 Outline { What we Study z Nine Principles of economics { Four involving individual choices { Five involving interactions of people z Examples of economic issues { How we Study it z Abstract models z An example 3 Nine Principles of Economics Principles involved in the choices people make (Optimization subject to constraints) 1. Scarcity, unlimited wants, tradeoffs 2. Opportunity costs – What you give up to get what you get 3. Marginal Thinking 4. Incentives
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2 4 Nine Principles, Continued Principles involved in the interaction between people 5. Voluntary trade makes both parties better off 6. Comparative advantage 7. Markets generally yield good outcomes (Adam Smith’s invisible hand) 8. Efficiency vs equity 9. Market failures may justify intervention 5 The nine Principles Individual behavior 1. Scarcity, unlimited wants, tradeoffs
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Unformatted text preview: 2. Opportunity Cost 3. Marginal thinking 4. Incentives Interaction 5. Voluntary trade 6. Comparative advantage 7. Invisible Hand 8. Efficiency vs Equity 9. Market Failures 6 Examples of Economic Issues { Shop at Home campaigns { Pollution control rules vs markets { Choosing your Lifes Mate { Increasing the Minimum Wage { Re-importation of Drugs from Canada 3 7 Economic Models/Abstractions { Economic analysis involves abstraction ignore unimportant detail and focus only on essential points. { Simple Example: where do hotdog vendors locate on a beach. z Assumptions { Long, narrow strand of beach. { Customers choose closest vendor { 2 vendors. { Vendors seek to locate where they will have the most customers z Solution ? z Extensions { Politics, gas stations, shopping centers...
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Chapter01_H - 2. Opportunity Cost 3. Marginal thinking 4....

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