Economics Notes - Chapter 1: TINFL- Theres no free...

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Unformatted text preview: Chapter 1: TINFL- Theres no free lunch-someone always bears the cost. Nothing is free. Purposeful Behavior- people base their actions on logic-Does not assume that people and institutions are immune from faulty logic.-Rational self interest is not the same as selfishness. MARG INAL ANALYSIS: Marginal (to an economist) : extra, additional, a change in Marginal cost- the extra cost or extra expense Marginal Benefit- the pleasure or benefit you gain from the item (UTIL ITY) Marginal Analysis: the comparison of marginal costs and marginal benefits OPPORTU I N I TY COST- to obtain more of one thing, society forgoes the opportunity of getting the next best thing.-The opportunity cost is included in the marginal cost Economics relies on the Scientific Method : The hypothesis made about the behavior of the economy is called economic principle, a statement about the economic behavior or the economy that enables prediction of probable effects of certain actions Cetris Paribus or Other-Things-Equal Assumption:-The assumption that all variables other than those under immediate consideration are held constant for a particular analysis. M icroeconomics- The part of economics concerned with individual units such as a person, household, firm or industry. Macroeconomics- examines society as a whole or its basic subdivisions. Positive and Normative Economics: Positive Economics- Focuses on facts and cause + effect relationship Normative Economics- incorporates opinions and judgments What actions should be recommended or what the economy should be like Individuals Economizing Problem Reasons why individuals have to make economic decisions:-limited income-Unlimited wants (Necessities and Luxuries) Budget line Curve: Opportunity Cost: in order to buy more DVDs you must buy less books and vice- versa. Trade-Offs: Books for DVDs or DVDs for Books Societys Economizing Problem-Scarce resources-Resources: Land (Or natural resources) Labor (physical, intellectual, Entrepreneurship) Capital (real)-purchase of capital goods is investment Functions of an Entrepreneur-Takes initiative in combining resources-makes strategic Business decisions-the innovator (new ideas, products, techniques, etc.)-The risk bearer (no guarantee of profit, risks his investment along with the investment of associates and stockholders) Production Possibilities model: Assumed for the model to work-Full employment: all resources are being employed in the economy-Fixed Resources: The quantity and quality of the factors of production are fixed-Fixed technology: State of the Technology remains constant-Two Goods: Consumer goods and capital goods *for table and curve look at page 9....
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This note was uploaded on 07/21/2010 for the course ECO 001 taught by Professor Melkonian during the Spring '10 term at Hofstra University.

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Economics Notes - Chapter 1: TINFL- Theres no free...

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