ECON111 Lecture Notes - Lecture 1: Scatter Plot, Marginal Cost, Opportunity Cost
Week 1 Introduction
Definitions
Economics - The social science that studies the choices that individuals, businesses,
governments and societies make as they cope with scarcity, the influences on these
choices and the arrangements that coordinate them.
Microeconomics - The study of the choices that individual and businesses make and
they way these choices interact and are influenced by the government.
Scarcity - The condition that arises because wants exceed the ability of resources to
satisfy them. Resources are limited but wants are unlimited. The ability of each of us
to satisfy our wants is limited by the time we have, the incomes we earn and the
prices we pay for things. The ability for society to satisfy our wants is limited by the
productive resources that exist. Scarcity means we must make choices.
Opportunity Cost - The value that we place on the next best alternative that you give
up when making a decision. The best thing you must give up to get something else.
Human wants > resources > scarcity > choices > opportunity cost
Incentive - A reward or a penalty that encourages or discourages an action.
Marginal Cost - The opportunity cost of a one-unit increase in an activity. What you
must give up to get an additional unit. E.g. seeing a movie over studying
Marginal Benefit - The benefits that arise from a one-unit increase in activity.
Measured by what you are willing to give up to get one additional unit.
Marginal Benefit vs Marginal Cost - extra benefit received from consuming one extra
unit vs extra cost from producing one extra unit
Rational Decision - A choice that uses the available resources to best achieve the
objective of the person making the choice. If the marginal benefit is bigger than the
marginal cost (if we are considering a single choice in isolation)
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Graph Interpretation
Scatter diagram - A graph of the value of one variable against the value of another
variable
Time-series graph - A graph that measures time on the x-axis and the variables in
which we are interested on the y-axis
Trend - A general tendency for the value of a variable to rise or fall over time
Cross-section graph - A graph that shows the values of an economic variable for
different groups in a population at a point in time
Q
MB
TB
1
10
10
2
8
18
3
7
25
4
0
25
5
-2
23
TB is increasing at a decreasing rate
Slope always represents the marginal e.g. slope represents marginal utility
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find more resources at oneclass.com
Document Summary
Economics - the social science that studies the choices that individuals, businesses, governments and societies make as they cope with scarcity, the influences on these choices and the arrangements that coordinate them. Microeconomics - the study of the choices that individual and businesses make and they way these choices interact and are influenced by the government. Scarcity - the condition that arises because wants exceed the ability of resources to satisfy them. The ability of each of us to satisfy our wants is limited by the time we have, the incomes we earn and the prices we pay for things. The ability for society to satisfy our wants is limited by the productive resources that exist. Opportunity cost - the value that we place on the next best alternative that you give up when making a decision. The best thing you must give up to get something else. Human wants > resources > scarcity > choices > opportunity cost.