Chapter 1 -- Carlos Pitta

Chapter 1 -- Carlos Pitta - Chapter 1 Ten Principles of...

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CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 1 Chapter 1 Ten Principles of Economics Instructor: Carlos Pitta
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CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 2 In this chapter, look for the answers to these questions: What kinds of questions does economics address? What are the principles of how people make decisions? What are the principles of how people interact? What are the principles of how the economy as a whole works?
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CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 3 What Economics Is All About Scarcity refers to the limited nature of society’s resources. Economics is the study of how society manages its scarce resources, including how people decide how much to work, save, and spend, and what to buy how firms decide how much to produce, how many workers to hire how society decides how to divide its resources between national defense, consumer goods, protecting the environment, and other needs 0
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CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 4 HOW PEOPLE MAKE DECISIONS Decision making is at the heart of economics. The first four principles deal with how people make decisions. 0
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CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 5 HOW PEOPLE MAKE DECISIONS All decisions involve tradeoffs. Examples: Going to a party the night before your midterm leaves less time for studying. Having more money to buy stuff requires working longer hours, which leaves less time for leisure. Protecting the environment requires resources that might otherwise be used to produce consumer goods. Principle #1: People Face Tradeoffs 0
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CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 6 HOW PEOPLE MAKE DECISIONS Society faces an important tradeoff: efficiency vs. equity efficiency : getting the most out of scarce resources equity : distributing prosperity fairly among society’s members Tradeoff: To increase equity, can redistribute income from the well-off to the poor. But this reduces the incentive to work and produce, and shrinks the size of the economic “pie.” Principle #1: People Face Tradeoffs 0
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CHAPTER 1 TEN PRINCIPLES OF ECONOMICS 7 HOW PEOPLE MAKE DECISIONS Making decisions requires comparing the costs and benefits of alternative choices. The opportunity cost of any item is whatever must be given up to obtain it. It is the relevant cost for decision making. Principle #2: The Cost of Something Is What You Give Up to Get It
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TEN PRINCIPLES OF ECONOMICS 8 HOW PEOPLE MAKE DECISIONS Examples: The opportunity cost of… …going to college for a year is not just the tuition, books, and fees, but also the foregone wages. …seeing a movie is not just the price of the ticket, but the value of the time you spend in the theater. Principle #2:
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This note was uploaded on 01/10/2011 for the course AEB 2514 taught by Professor Evandrummond during the Spring '09 term at University of Florida.

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Chapter 1 -- Carlos Pitta - Chapter 1 Ten Principles of...

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