CH1 - • Example comparison shopping 5 There are gains...

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Chapter 1 Outline Read the introduction and chapter 1. What is economics? The study of how economic units make decisions under conditions of scarcity, and the objectives and incentives that influence those choices. Microeconomics vs. macroeconomics Normative vs. positive economics Basic principles: 1. Resources are scarce What are resources? 2. Opportunity cost matters Implicit vs. explicit costs Example: the opportunity cost of attending college 3. Decisions are made at the margin How much of an activity should you choose? Example: how many hours should you study for your economics final? Example: how many hours should a firm advertise? 4. People exploit opportunities to make themselves better off People respond to incentives
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Unformatted text preview: • Example: comparison shopping 5. There are gains from trade • Why do people specialize? • More on this in chapter 2 6. Markets move towards equilibrium • Balanced situation • Example: what happens when a new lane opens up at the grocery store? • Example: what happens when the store cannot sell all of its goods? 7. Resources should be used efficiently • Not possible to make someone better off without making someone else worse off • More on this later 8. Markets are usually efficient • No market failures • More on this later 9. When markets fail, government intervention can be beneficial. • Example: firms are dumping toxic waste into a lake from their factories...
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