Chapter%201 - ECON1200 Principles of Microeconomics Fall...

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ECON1200: Principles of Microeconomics Instructor: Ramsey Abu-Absi Fall 2009 Notes: Mankiw 5e Chapter 1 [email protected] Chapter 1 – Page 1 CHAPTER 1: TEN PRINCIPLES OF ECONOMICS (p.3) A society has to make use of scarce resources in order to satisfy the needs and wants of the people who live in it. Scarcity means that the resources available to people in a society are limited. Economics is the study of how society manages its scarce resources. In a centrally planned economy, resources are controlled and allocated by the government planners. In most economies, resources are allocated by markets (the combined actions of households, firms, and governments). Therefore, economists are concerned with the decision-making processes employed by these economic agents. An economic agent is any decision-making unit in an economy, such as a household, firm, or government. Economists also look at the effects of the interactions of these economic agents. Finally, economists look at forces or trends that might affect the economy as a whole, such as inflation and unemployment rates. How People Make Decisions (p.4) Economic activity is the sum total of the decisions of individual agents. The first four Principles of Economics deal with individual decision-making. Principle #1: People Face Tradeoffs Any decision made involves giving something up. For example, if a student decides to study economics for an hour, she is necessarily giving up either an hour of studying for another class, or an hour of leisure time, or whatever else she might have decided to do. When decisions are made in the economy as a whole, tradeoffs are also made. The classic example of this found in economics classes is the guns vs. butter tradeoff. In this example, guns actually is interpreted as spending on national defense, and butter is interpreted as spending on the production of consumer items. Society also faces a tradeoff between Efficiency and Equity.
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This note was uploaded on 06/23/2010 for the course ECON 1200 taught by Professor Cook during the Spring '08 term at Toledo.

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Chapter%201 - ECON1200 Principles of Microeconomics Fall...

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