Chapter 1 and 2

Chapter 1 and 2 - EC101 Intro economic way of thinking...

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EC101 Intro economic way of thinking Facts and Premises
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Introduction: What is Economics? Social science: Study of human action Basically, the study of what happens when people decide to produce and trade. Commonly defined as the study of how individuals and societies, experiencing virtually unlimited wants , choose to allocate scarce resources to satisfy their wants. Basic element of study: The individual NOT money ! Best to think in terms of a flow of goods (resources) - not money or income. Money is
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SCARCITY People’s desire for things is far greater than what is freely available from nature Gap between wants and limited resources Unlimited Wants [ends] Limited Resources [means]* Basic concept or fact behind economic issues Economics= reconciliation of gap
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Scarcity necessitates the following: Making choices Some means of rationing goods Competition for scarce resources True for any group or society.
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Resources [inputs] Land : natural resources, including mineral deposits, oceans and rivers (do not depreciate) Labor : human resources, including Capital : man-made resources (depreciate) Real items that are made with combination of Human capital refers to knowledge and expertise. Both forms generally require investment.
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The other input: Entrepreneur Important role : mixes other inputs in a way that creates value for others. Earns “profits”- the residual income after all other costs are taken into account Profits : When people are willing to pay more than what it costs to produce a good. Losses : When people are not willing to pay what it costs to produce a good. Everyone functions as an entrepreneur at times. How?
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Scarcity v. Poverty Poverty is a condition where the most basic needs of life are barely met or not met at all. Nature is stingy and, for 1000s of years, mankind barely lived above a subsistence level of living. [1600s, Thomas Hobbes: “life is short and brutish” ] In recent times, the stingy grip of reality has been considerably loosened (see photos). Scarcity , however, is the relative gap between ends and means - and will never be eliminated.
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8 Guideposts to Economic Thinking 1. The use of scarce resources is costly; trade-offs must always be made. 2. Individuals choose purposefully—they get the most from their limited resources. 3. Incentives matter! 4. Individuals make decisions at the margin. 5. The benefits of information must be weighed against the cost of its
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action: Starting with something we already know Human action is rational/purposeful Benefits of an action expected to exceed costs Economizing - getting the most with what you have Utility - another term for benefits or satisfaction The value of a good is personal/subjective Value for the same good can differ. .lead to trade and exchange
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Chapter 1 and 2 - EC101 Intro economic way of thinking...

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