Notes_March_29 - ECON 200 B Spring 2010 Notes I...

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ECON 200 B Spring 2010 Notes I INTRODUCTION Adapted From Ted Scheinman’s Course Notes, Mount Hood Community College I. What does economics study? A. The following are ten principles in economics and their explanations: 1. HOW PEOPLE MAKE DECISIONS: a) People face tradeoff because of scarcity . i. Economics is based upon choices – people always have choices. We may not like our options, but there is always a choice. ii. The fact that people make choices implies that people are rational. They make choices so that they are as well off as possible, given the conditions available. iii. In essence, rational people evaluate alternatives and make choices that make them better off. b) People’s choices involve costs . i. Whenever we make a choice, we incur a cost. (1) Costs can be monetary, where you pay money for something. (2) Costs can be non-monetary, where we have to give up something else (like time) or some activity you could be doing. ii. When economists refer to costs, they generally refer to opportunity costs – what you must give up to get something. This will be discussed in more detail below. c) People respond to incentives in predictable ways . i. Incentives are rewards – either positive or negative. ii. There are many types of rewards: (1) Money rewards (2) Physical rewards (3) Family rewards (4) Psychological rewards (5) Healthy body rewards (6) Moral or religious rewards d) Rational people think at the margin. i. Rational implies people are doing their best to achieve their objectives given available opportunities. ii. At the margin means we think in incremental changes when we make decisions. This will be a very important concept that is used throughout the course. 2. HOW PEOPLE INTERACT a) People create economic systems or institutions that influence individual decisions Markets are an important example of this . i. Rules set up by societies influence how people respond. ii. In a market economy resources are allocated through the market mechanism. This means the decentralized decisions of firms and households determine resource allocation. b)
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Notes_March_29 - ECON 200 B Spring 2010 Notes I...

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