Ch 1 outline - Chapter 1 outline: I. Introduction A. The...

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Chapter 1 outline: I. Introduction A. The word “economy” comes from the Greek word meaning “one who manages a  household.” B. This makes some sense since in the economy we are faced with many decisions  (just as a household is). C. Fundamental economic problem: resources are scarce. D. Definition of  scarcity : the limited nature of society’s resources. E. Definition of  economics : the study of how society manages its scarce  resources. II. How People Make Decisions A. Principle #1: People Face Tradeoffs 1. “There is no such thing as a free lunch.”   Making decisions requires  trading off one goal for another. 2. Examples include how a student spends her time, how a family decides  to spend its income, how the U.S. government spends tax dollars, how  regulations may protect the environment at a cost to firm owners. 3. A special example of a tradeoff is the tradeoff between efficiency and  equity. a. Definition of  efficiency : the property of society getting the  most it can from its scarce resources. b. Definition of  equity : the property of distributing economic  prosperity fairly among the members of society. c. For example, tax dollars paid by wealthy Americans and then  distributed to those less fortunate may improve equity but lower  the return to hard work and therefore reduce the level of output  produced by our resources.
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d. This implies that the cost of this increased equity is a reduction in  the efficient use of our resources. 4. Recognizing that tradeoffs exist does not indicate what decisions should  be made. B. Principle #2: The Cost of Something Is What You Give Up to Get It 1. Making decisions requires individuals to consider the benefits and costs  of some action. 2. What are the costs of going to college? a. We cannot count room and board (at least all of the cost)  because the person would have to pay for food and shelter even  if he was not in school. b.
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This note was uploaded on 08/31/2009 for the course EC 350 taught by Professor Sekelj during the Spring '08 term at Clarkson University .

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Ch 1 outline - Chapter 1 outline: I. Introduction A. The...

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