{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Econ1 - Chapter 1 Economics Foundations and Models Scarcity...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 1: Economics: Foundations and Models Scarcity- a situation in which unlimited wants exceed the limited resources available to fulfill those wants Economics- the study of the choices people make to attain their goals, given their scarce resources Economic models- a simplified version of reality used to analyze real-world economic situations Three Key Economic Ideas Market- a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade o 1. People are rational o 2. People respond to economic incentives o 3. Optimal decisions are made at the margin People Are Rational Economists assume people are rational They assume consumers and firms use all available information as they act to achieve their goals Rational individuals weigh the benefits and costs of each action, and they choose an action only if the benefits outweigh the costs People Respond to Economic Incentives Consumers and firms consistently respond to economic incentive Optimal Decisions Are Made at the Margin Economists use the word marginal to mean “extra” or “additional” Marginal benefit and marginal cost Economists reason that the optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost (where MB=MC) Marginal analysis- analysis that involves comparing marginal benefits and marginal costs The Economic Problem That Every Society Must Solve Economic problem that it has only a limited amount of economic resources and so can produce only a limited amount of goods and services Trade-offs- the idea that because of scarcity, producing more of one good or service means producing less of another good or service Opportunity cost- the highest-valued alternative that must be given up to engage in an activity Trade-offs force society to make choices when answering the following 3 fundamental questions: o 1. What goods and services will be produced?
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern