Chapter 1 Notes

Chapter 1 Notes - 21:52 hapter1/Introduction C...

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21:52 Chapter 1/Introduction -      What is Economics?     (Read with Chapter 1) Economics is concerned with optimum allocation of limited resources  among unlimited wants. What are Economic Resources? Economics resources (or factors of production) are: Labor Land Capital Entrepreneur  How do we know a resource is limited? Limited or scarce resources are resources that we pay a price for. Factor Prices are: Price of labor : wages
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Price of land : rent Price of capital : interest Price of entrepreneur : profit How do we allocate economic resources? The way economic resources are allocated depends on economic  systems. Labor includes  skilled and unskilled labor Land includes the  land and all the resources on the land and under the land Capital includes  physical tools of production  (note that, in economics only  physical tools of production are considered as capital. Money, bonds, and  stocks are not capital.) Why do we study economics? Because resources are limited. Economics – Basic Assumptions     Basic Assumptions     : Rational economic behavior, self-interest, incentive, and  maximizing principles: economic agents, households, firms, and governments are  assumed to be rational and behave rationally. Objectives derived from these  assumptions are: Households  – maximize utility Firms  – maximize profit
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Government  – maximize votes Basic tools:  Market Analysis, Cost and Benefit Analysis Marginal Cost/Marginal Benefit Analysis     Normative Economics : Statements based on value judgment and personal norms. The way things  should be based on our own value judgment. Positive Economics
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This note was uploaded on 02/06/2011 for the course BUAD 252x at USC.

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Chapter 1 Notes - 21:52 hapter1/Introduction C...

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