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Unformatted text preview: #1 06/02/2007 16:13:00 ← Economics • The study of how individuals and societies choose to use scarce resources that nature and previous generations have provided • Scarcity is the consequence of unlimited wants and limited means – the pig principle ← ← There are four main reasons to study economics • To a way of thinking • To understand society • To understand global affairs • To be an informed voter ← ← To Learn a Way of Thinking (Rational Choice Theory) • Three Fundamental Concepts o Opportunity Cost o Marginalism o Efficiency ← ← Opportunity Cost • The best alternative that we forgo or give up when we make a choice or decision. This concept is best illustrated by the Production Possibilities Frontier (PPF) ← ← ← ← ← ← Marginalism • The process of analyzing the additional or incremental costs or benefits arising from a choice or decision. • If added benefits exceed added costs, keep going! Sunk Costs • Costs that cannot be avoided regardless of what is done in the future, b/c they have already been incurred. Sunk cost fallacy can lead to mistakes. • Sunk cost fallacy occurs when we do opposite of marginalism! ← ← Efficiency • Efficient Market a market in which profit opportunities are eliminated almost instantaneously • Pareto Optimum no person can be made better off without making one person worse off ← ← Economics is an essential part of studying society • Industrial Revolution the period in England during the late 18 th and early 19 th century in which new manufacturing technologies and improved...
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This note was uploaded on 03/30/2008 for the course ECON 1120 taught by Professor Wissink during the Spring '05 term at Cornell.
- Spring '05