141_Chapter_1_Lecture - 1 The Scope and Method of Economics...

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1 The Scope and Method of Economics OUTLINE OF TEXT MATERIAL I. Introduction The authors show students how economics relates to their everyday lives. Case and Fair discuss the interactions between the United States and other countries, while also comparing the United States to other countries. The section concludes with a definition of economics that emphasizes the two fundamental economic problems: scarcity and choice. II. Why Study Economics? There are four main reasons to study economics: A. To Learn a Way of Thinking Also described as a way to make decisions, this way of thinking can be described by three fundamental concepts: 1. Opportunity Cost: Every decision means giving up something. Economists are fond of trade-offs as a way of thinking about decision making. Taking one action usually means giving up something else. As the text states, “The full cost of making a specific choice includes [the value of] what we give up by not making the alternative choice.” Opportunity cost is the value of what we forgo when we make a choice. Opportunity costs arise because resources are scarce. Resources are scarce because human wants exceed what we can produce from our current resources. 3
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4 Principles of Macroeconomics 2. Marginalism: “Marginal” means a small change. The text uses marginal cost , the cost of increasing production by one unit. This can be illustrated by putting added miles on a car; the change in the odometer reading is the marginal mileage. Marginalism is “the process of analyzing the additional or incremental costs or benefits arising from a choice or decision.” 3. Sunk Costs: “Sunk” means vanished. Sunk costs mean the time and money have been spent and can’t be recovered. Sunk costs “cannot be avoided, regardless of what is done in the future, because they have already been incurred.” Therefore
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This note was uploaded on 06/15/2010 for the course EC 141DLC taught by Professor Antonifirner during the Fall '09 term at Park.

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141_Chapter_1_Lecture - 1 The Scope and Method of Economics...

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