CHAPTER 1 - CHAPTER 1. PRINCIPLES Economics is the study of...

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PRINCIPLES Economics is the study of the efficient allocation of society’s scarce resources. Resources are not just money. Labor force (people), natural resources (water, woods, jungles, etc.), land, time, capital, etc. are some of the resources that individuals and a society possess. Resources are scarce because our needs are always greater than the resources available to satisfy them. For example, there is never enough money to buy all the things that we want nor there is enough time to do all the things that we would like to do. Because resources are scarce individuals and societies must use them in the best possible way, this is, individuals and societies must get the most out of their scarce resources. PRINCIPLES OF ECONOMICS Economics is all about making decisions. Individuals make decisions about what to do with their resources (how should I spend my money: buying a TV set or buying clothes? How should I spend my Sunday afternoon: watching a game, doing my homework, or buying groceries?). Individual decisions, however, can affect other people as well. For example, the manager of a company might decide to buy a machine that makes the productive process much more efficient, which in the end may reduce the final price for the customers. The machine, however, replaces the work done by two employees, who eventually will be laid off by the company. Individual decisions, in consequence, entail interactions among individual agents. The authors mention 9 principles. Resources are scarce Opportunity Cost Individual Choice Decisions are taken at the margin Decision-makers respond to incentives Gains from trade Markets move toward equilibrium Resources should be used as efficiently as possible Interaction of Markets (usually) lead to efficiency Individual choices Government intervention is needed to correct the market’s shortcomings INDIVIDUAL CHOICE Resources are Scarce . This is the reason why decisions must be made. If resources were unlimited we would not face the problem of deciding what to buy (and therefore, what not to buy) or what to do (and therefore, what not to do). Opportunity Cost
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This note was uploaded on 04/08/2008 for the course ECON 120 taught by Professor Serpa during the Spring '08 term at Ill. Chicago.

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CHAPTER 1 - CHAPTER 1. PRINCIPLES Economics is the study of...

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