Ch1 - Chapter : Introduction In this chapter look for the...

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Unformatted text preview: Chapter : Introduction 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? :*4 68/4(/62*9 5, *(5453/(9 What Economics Is All About Scarcity : the limited nature of societys resources Economics : the study of how society manages its scarce resources LN how people decide what to buy how much to work save and spend 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 ]MJ prNnHNpQJs oK HOW PEOPLE MAKE DECISIONS :*4 68/4(/62*9 5, *(5453/(9 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 could otherwise be used to produce consumer goods Principle 1: People Face Tradeoffs :*4 68/4(/62*9 5, *(5453/(9 HOW PEOPLE MAKE DECISIONS Society faces an important tradeoff: JKKNHNJnHy vs JquFQNty Efficiency : when society gets the most from its scarce resources Equality : when prosperity is distributed uniformly among societys members Tradeoff: To achieve greater equality could redistribute income from wealthy to poor But this reduces incentive to work and produce shrinks the size of the economic pie Principle 1: People Face Tradeoffs :*4 68/4(/62*9 5, *(5453/(9 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 :*4 68/4(/62*9 5, *(5453/(9 HOW PEOPLE MAKE DECISIONS *_HSVRLY+ The opportunity cost of going to college for a year is not just the tuition...
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Ch1 - Chapter : Introduction In this chapter look for the...

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