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EconCh.1 intro - Opportunity cost the real cost of an item...

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Chapter 1: An economy is a system for coordinating the productive activities of many people.  In a market economy, such as the one we live in, that coordination takes place  without any coordinator: each individual makes his or her own choices.  Individual Choice: The Core of Economics     Individual choice-  decisions by  an individual about what to do and what  not  to do Resources Are Scarce Resources-  anything that can be used to produce something else Scarcity-  there is not enough of the resources available to satisfy all the various  ways a society wants to use them The scarcity of resources forces society to make choices as a whole  Decisions about how to use scarce resources are often best left to individuals but  sometimes should be made at a higher, community-wide level The Real Cost of Something Is What You Must Give Up To Get It
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Unformatted text preview: Opportunity cost- the real cost of an item; what you must give up in order to get it All costs are ultimately opportunity costs “How Much?” Is a Decision at the Margin “How much?” is a decision made at the margin Trade-off- compare the costs with the benefits of doing something Marginal decisions- decisions about whether to do a bit more or a bit less of an activity are marginal decisions Marginal analysis- the study of marginal decisions People Usually Exploit Opportunities to Make Themselves Better Off People will exploit opportunities until those opportunities have been fully exploited Incentives- anything that offers rewards to people who change their behavior Economics tend to be skeptical of any attempt to change people’s behavior that doesn’t change their incentives...
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