Ch 1 10 Principles

Ch 1 10 Principles - Chapter 1: Ten Principles of Economics...

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Chapter 1: Ten Principles of Economics Economy comes from the Greek word oikonomos Scarcity : the limited nature of society’s resources Economics : The study of how society manages its scare resources How firms decide how much to produce, how many workers to hire How society decides how to divide its resources between national defenses, consumer goods How People Make Decisions Broken down into four principles of individual decision making Principle 1: People Face Trade-offs All decisions involve tradeoffs; To get one thing we must give up another “There’s no such thing as a free lunch” Society faces an important tradeoff: efficiency vs. equality Efficiency : when society gets the most from its scares resources Equality : when prosperity is distributed uniformly among society’s 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 2: The Cost of Something Is What You Give Up To Get It Compare the benefits of your time Making decisions require comparing the costs and benefits of alternate choices
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This note was uploaded on 01/08/2012 for the course EC 101 taught by Professor Idson during the Fall '08 term at BU.

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Ch 1 10 Principles - Chapter 1: Ten Principles of Economics...

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