Chapter One

Chapter One - PRINCIPLES of MICROECONOMICS by N. Gregory...

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PRINCIPLES of MICROECONOMICS by N. Gregory Mankiw (4 th Edition) Chapter One Outline CHAPTER 1: TEN PRINCIPLES OF ECONOMICS Scarcity - The limited nature of society’s resources - Means that society has limited resources and therefore cannot produce all the goods and services people wish to have Economics - The study of how society manages it’s scarce resources Seven Principles of Microeconomics Principles 1-4: How people make decisions Principle 1: People face trade-offs - To get one thing we like, have to give up another thing we like - Making decisions requires trading-off one good against another - Examples of trade-offs o 1. Guns vs. Butter o 2. Clean environment vs. High level of income o 3. Efficiency vs. Equity - Efficiency – Property of society getting the most it can from its scarce resources - Equity – Property of distributing economic prosperity fairly among members of society Principle 2: The cost of something is what you give up to get it - Opportunity Cost – whatever must be given up to obtain some item
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This note was uploaded on 04/08/2008 for the course ECON 101 taught by Professor Idson during the Spring '08 term at BU.

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Chapter One - PRINCIPLES of MICROECONOMICS by N. Gregory...

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