Chapter 1_Micro_S09

Chapter 1_Micro_S09 - Principles of Microeconomics...

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1 Principles of Microeconomics Introduction and Chapter 1
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2 Introduction Outline Economics Micro versus Macro Modeling decision making The Scarcity Principle Cost/Benefit Analysis Opportunity costs Cautions Discuss Articles on Price Gouging Normative versus positive economics Government Policy Objectives Ceteris Paribus
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3 Introduction Economics: The study of how individuals and societies choose to use scarce resources. Economics also is the study of these decisions for society, and whether or not there is a role for the government to improve the outcome
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4 Introduction Microeconomics: focuses on behavior of individual decision-making units Households, firms Macroeconomics: examines the economic behavior of aggregates (income, employment, output, and so on—on a national scale).
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5 Modeling Decision Making: the Scarcity Principle Scarcity : not enough available to satisfy boundless wants and needs Having more of one thing, means giving up something else No such thing as a free lunch Even if someone offers to buy your lunch, you must still devote your time that could have been spent doing something else.
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6 Modeling Decision Making: Cost- Benefit Analysis In modeling behavior of individuals, we will generally assume that they are rational and choose a course of action if the extra benefits exceed the extra costs Must correctly measure these costs and benefits
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Cost-Benefit Analysis Full cost of a decision includes both monetary costs as well as the value of the next best alternative use of time that must be forgone Opportunity costs =the value of the best alternative that we forgo, or give up, when we make a choice or decision Note: not the value of all missed opportunities-only the best, most valuable one. Includes both time and direct monetary costs.
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This note was uploaded on 07/22/2009 for the course ECON 203 taught by Professor Nelson during the Fall '08 term at Texas A&M.

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Chapter 1_Micro_S09 - Principles of Microeconomics...

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