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Ch.1 & 2 (1)

Ch.1 & 2 (1) - Chapter 1 First Principles Stop...

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Chapter 1: First Principles: Stop Reading on Pg 12 “How the Economy as a Whole Works.” Economics is the Science of how SOCIETY makes choices Basic Principles – How Individuals Make Choices I. Scarcity is the Central Problem in Economics RESOURCES are scarce Resources: are anything used to produce other things Scarcity : too few resources to satisfy individual desires Resources are _________ and people’s wants are ___ II. People Can’t Get Everything They Want We face Trade-Offs Opportunity Cost : is the REAL (actual) cost of something – It is what you must give up to get it. Page 1 of 10
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III. How much is a question at the margin GOLDEN RULE: Keep doing something as long as the Additional Benefit (The Marginal Benefit ) is Greater than the additional Cost (Marginal Cost ) Marginal Benefit : Marginal Cost : IV. Incentives Matter People Respond to Incentives Examples Page 2 of 10
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V. People Behave Rationally: Interactions of our Individual Decisions I. Gains from Trade and specialization II. Markets are usually a Good Way to Organize
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