Ch 1 Notes
•
Economics
- the study of how individuals and societies
choose
to use
scarce resources that nature and previous generations have provided.
•
Economics is the study of how people make choices, which when added
up translates to societal choices
•
Economics
- How society uses scarce resources to produce valuable
commodities and distribute among people
WHY STUDY ECONOMICS
?
TO LEARN A WAY OF THINKING
•
The study of economics teaches us a way of thinking and helps us
make decisions
•
Economics has three fundamental concepts:
•
OPPORTUNITY COST
•
Opportunity cost- the best alternative that we forgo, or give up,
when we make a decision.
•
Opportunity costs arise b/c resources are scarce (scarce=limited)
•
MARGINALISM
•
Marginalism- the process of analyzing the additional or incremental
costs or benefits arising from a choice or decision
•
You live in New Orleans and wants to visit Mom in Iowa and
business requires you to go to Kansas City, so the cost of visiting
Mom would be only the additional/marginal time and money cost of
getting to Iowa from Kansas City
•
To produce a CD music labels spend $300,000 for recording music,
developing materials, and distributing the album.
•
To produce another copy costs about $2. Every new copy costs only
$2 so as long as EMI can sell that copy for more than $2 it is better
off making the copy
•
Marginal cost- incremental cost of producing one more unit of a
good i.e. $2
•
Sunk costs- costs that cannot be avoided b.c they have already
been incurred. I.e. original investment $300,000
•
Marginal cost helpful- for airlines about to fly off with empty seats
the marginal cost of an extra passenger is zero (the total cost of
the trip is roughly unchanged by the addition of an extra
passenger) thus setting aside a few seats to be sold at discount can
This
preview
has intentionally blurred sections.
Sign up to view the full version.

This is the end of the preview.
Sign up
to
access the rest of the document.
- Spring '08
- MarthOlney
- Economics, Oil prices, profit opportunities
-
Click to edit the document details