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Economics Notes Lecture 1

Economics Notes Lecture 1 - Economics Notes Lecture 1...

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Economics Notes Lecture 1 Economics Scarcity: when the price is zero there is not enough for everyone. (Unlimited wants and Limited availability) Decision making: people have as if they are comparing the cost and benefits. (Benefits vs. Costs) Cost = Opportunity Cost The law of demand: holding other things constant, the lower the price of a good the larger the quantity consumers wish to purchase. Why is the demand curve downward sloping? The income effect The substitution effect o As the dollar price of a good increases, the relative price of the rest of the goods decreases o Substitutes are everywhere. How to think about the demand curve? A demand of a single consumer o Joe Smith’s consumption of apples A demand for one unit of the good by a number of consumers o Refrigerators, cars The combination of the two. Price = Relative Price The amount that a consumer has to give up to obtain one unit of a good.
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