Lecture+1[1] - ECON 2005 Principles of (Micro)Economics...

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ECON 2005 Principles of (Micro)Economics Steve Trost (rhymes with “most”) Pamplin 3034 Phone: 231-4537 Email: strost@vt.edu Office hours: MT 2:30-4:30 or by appt. 1 of 36
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WHAT IS ECONOMICS? Simply put, economics is the study of the choices agents make. Agents = people or firms or countries— pretty much any decision-making entity. Decisions can be big (trade policy), or small (buying a Twix). When considering a decision, agents consider the costs and the benefits . If the benefit of doing something is greater than the cost, then do it. If the cost is greater than the benefit, then don’t. 2 of 36
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SCARCITY What makes these choices hard or interesting is the presence of scarcity. When making choices, these agents are restricted by scarcity in some way – a scarcity of money, time, natural resources, etc. When we use our resources for one thing, we cannot use them for something else. 3 of 36
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OPPORTUNITY COST Because of this, EVERYTHING we do has a cost. In economics, we define costs in a special way, using the concept of “opportunity cost”. opportunity cost: The best alternative that we forgo, or give up, when we make a choice or a decision. We will see this concept come up again and again! When we choose one thing, we have to consider what we are giving up. 4 of 36
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Wants, desires: unlimited Resources: scarce Economics: How agents (people, firms, countries) use scarce resources to satisfy unlimited wants But really, microeconomics is just common sense with some formalization. You already KNOW a lot of economics!
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Lecture+1[1] - ECON 2005 Principles of (Micro)Economics...

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