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ECON 1BB3 Lecture Notes - Externality, Opportunity Cost

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Bridget O' Shaughnessy

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Ten Principles of Economics
Econ 1BB3
How People Make Decisions:
1. People face tradeoffs
2. The cost of something is what you give up to get it
Opportunity cost (buying a coffee what else you would be doing with those 2 dollars)
3. Rational people think at the margin(edge) Additional Step
Cost and benefits ---------- Additional costs/benefits (All relevant)
4. People respond to incentives
How People Interact:
1. Trade can make everyone better of
If we add up all the people that are negatively affected by fair trade, the number is
smaller compared to the number of people who are bettered by fair trade.
2. Markets tend to increase efficiency
Centrally planned communism (equity) having more equity tends to make us less
How much can we produce
3. Sometimes the government an eliminate market inefficiencies
Externality When a transaction between two people affect a third party
How the Economy as a Whole Works:
1. A country's standard of living depends on its productivity
Per Capita GDP ch. 5
Output per worker ch. 7
2. Prices increase when the government prints too much money
ch.10, 11 - Zimbabw
3. There is a short-run tradeoff between inflation and unemployment
ch 14,15
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