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Sept 10 Intro LEC ECO 1104 - Intro LEC ECO 1104 Chapter 1...

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Intro LEC ECO 1104 Chapter 1 - Ten principles of Economics Economy: involves bargaining and making decision for what people are responsible for what tasks. Resources are scarce even though it may not seem that way Most Important: - How people make decisions - How people interact with each other How people make decisions Principle 1: People face tradeoffs Making decisions requires trading off one goal against another. Efficiency vs. Equity: - Efficiency : the property of society getting the most it can from its scarce resources. - Equity : the property of distributing economic prosperity fairly among the members of society You can share the resources of a country but the efficiency would be lower. Principle 2 : The cost of something is what you give up to get it. The opportunity cost of an item is what you give up to obtain that item. Principle 3: Rational people think at the margin Marginal changes are small, incremental adjustments to a plan of action. People make decisions by comparing costs and benefits at the margin. Principle 4: People respond to incentives Example: Death penalty – The increase of fines and sentences for crimes do not always decrease crime rates.
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