01 introduction PPT

The equilibrium principle 103738 13 103738 14 ten big

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Unformatted text preview: The Principle of Increasing Opportunity Cost (6) The Efficiency Principle (7) The Equilibrium Principle 10:37:38 13 10:37:38 14 Ten Big Ideas (Cowen, Tyler, and Alex Tabarrok, 2011, Modern Principles: Microeconomics, 2nd edition. New York: Worth Publishers): (1) Incentives matter (2) Good Institutions align Self-interest with the Social-interest (3) Trade-offs are Everywhere (4) Thinking on the Margin (5) The power of Trade (6) The importance of Wealth and Economic Growth (7) Institutions matter (8) Economic booms and busts cannot be avoided but can be moderated (9) Prices rise when the Government prints too much Money (10) Central Banking is a Hard job 10:37:38 Cost and Benefit Analysis 15 10:37:38 16 Opportunity cost 10:37:38 17 10:37:38 18 3 two concepts of cost chapter 12: production cost (i) Economic cost (opportunity cost): “the cost of something is what you give up to get it. Recall that the opportunity cost of an item refers to all those things that must be forgone to acquire that item” Assumption: firms maximize profit Profit = total revenue − total cost Total revenue : the amount a firm receives for the sale of its output. (TR = P × Q) (ii) Accounting cost: the costs listed on accounting statements what is cost? 10:37:38 19 10:37:38 20 Economic cost is different from accounting cost because, in economics, some costs are explicit, some are implicit Since there are two different concepts of cost, there are two different definitions of profit Explicit costs: input costs that require an outlay of money by the firm Accounting profit = total revenue – explicit costs Implicit costs: input costs that do not require an outlay of money by the firm Economic profit = total revenue – (explicit costs + implicit costs) Accountants can use only explicit costs because the job nature of accountants is to verify each entry on accounting statements, and only...
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This document was uploaded on 03/06/2014.

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