ECO1104 - Winter 2011 - ECO1104 Microeconomics Chapter 1...

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ECO1104 – Microeconomics Chapter 1 – Ten Principles of Economics Scarcity – the limited nature of society’s resources Economics – the study of how society manages its scarce resources Efficiency – the property of society getting the most it can from its scarce resources Equity – the property of distributing economic prosperity fairly among the members of society Opportunity cost – whatever must be given up to obtain some item Rational people – people who systematically and purposefully do the best they can to achieve their objectives Marginal Changes – small incremental adjustments to a plan of action Incentive – something that induces a person to act Market economy – an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services Property rights – the ability of an individual to own and exercise control over scarce resources Market failure – a situation in which a market left on its own fails to allocate resources efficiently Externality – the impact of one person’s actions on the well-being of a bystander ex pollution Market power – the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices ex water and one well Productivity – the quantity of goods and services produced from each hour of a worker’s time Inflation – an increase in the overall level of prices in the economy Business Cycle – fluctuations in economic activity, such as employment and production How People Make Decisions Principle #1 – People Face Tradeoff Principle #2 – The Cost of Something Is What You Give up to Get it Principle #3 – Rational People Think at the Margin - marginal benefit exceeds marginal costs Principle #4 – People Respond to Incentives How People Interact Principle #5 – Trade Can Make Everyone Better Off Principle # 6 – Markets Are Usually a Good Way to Organize Economic Activity - collapse of communism in the Soviet Union and Eastern Europe in the 1980’s caused this change - Central planners decided what goods and services were produced, how much and who produced and consumed
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- Firms decide who to hire and people to decide who to work for Principle #7 – Governments Can Sometimes Improve Market Outcomes - government can improve on market outcomes but don’t always How the Economy as a Whole Works Principle #8 - A Country’s Standard of Living Depends on Its ability to Produce Goods and Services - Individuals incomes have historically grown 2 percent per year in Canada - Due to productivity - Growth rate of productivity is determined by growth rate of average income Principle #9 – Prices Rise When the Government Prints Too Much Money - Keeping inflation low is a goal of economic policymakers - Causes various costs on society Principle #10 – Society Faces a Short-Run Tradeoff between Inflation and Unemployment - increase in money in the economy stimulates the overall spending and thus the
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This note was uploaded on 10/11/2011 for the course ECONOMICS 1104 taught by Professor Jeffreypeter during the Winter '11 term at University of Ottawa.

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ECO1104 - Winter 2011 - ECO1104 Microeconomics Chapter 1...

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