Microeconomics Notes - Microeconomics Notes CHAPTER 1: 10...

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Microeconomics Notes CHAPTER 1: 10 principles of microeconomics Society and Scarce resources: o The management of society’s resources is important because resources are scarce. o Scarcity - society has limited resources and therefore cannot produce all the goods and services ppl wish to have. Economics -study of how society manages its scarce resources How ppl make decisions: o People face tradeoffs o The cost of something is what you give up to get it. o Rational ppl think at the margin o Ppl respond to incentives. How ppl interact with each other: o Trade can make everyone better off o Markets are usually a good way to organize economic activity o Govts. Can sometimes improve economic outcomes The forces and trends that affect how the economy as a whole works: o The standard of living depends on a country’s production o Prices rise when the govt prints too much money o Society faces a short-run tradeoff btw. Inflation and unemployment PRINCIPLES: #1: PEOPLE FACE TRADEOFFS o To get one thing, we usually have to give up another thing. o Making decisions requires trading off one goal against another. o Efficiency - society gets the most that it can get from its scarce resources. o Equity- benefits of those resources are distributed fairly among the members of society. #2: THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT o Decisions require comparing costs and benefits of alternatives Ex. College or work? Study or date? o The opportunity cost of an item is what you give up to obtain that item. #3: RATIONAL PEOPLE THINK AT THE MARGIN o Marginal changes- small, incremental adjustments to an existing plan of action. o People make decisions by comparing costs and benefits at the margin #4: PEOPLE RESPOND TO INCENTIVES o Marginal changes in costs or benefits motivate people to respond o The decision to choose one alternative over another occurs when that alternative’s marginal benefits exceed its marginal costs #5: TRADE CAN MAKE EVERYONE BETTER OFF o Ppl gain from their ability to trade with one another o Competition results in gains from trading
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This note was uploaded on 03/30/2008 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell University (Engineering School).

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Microeconomics Notes - Microeconomics Notes CHAPTER 1: 10...

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