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Lecture 1

ECN 104 Lecture Notes - Lecture 1: Taco, Seat Belt, Opportunity Cost


Department
Economics
Course Code
ECN 104
Professor
Tsogbadral Galaabaatar
Lecture
1

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ECN 104 – Introductory Economics
Chapter 1: Ten Principle of Economics:
Economics is about...
Scarcity: The limited nature of society’s resources
Natural resource, land and worker’s time are all limited in its availability.
Economics is about how the society manages its limited resources.
Two agents: firms and consumers
Firms: what to produce, how much to produce, how many workers to hire, etc.
Consumers/Individuals: what to purchase, how much to save, how many hours
to work, etc.
We will study about how these decisions are made.
HOW PEOPLE MAKE DECISIONS:
Principle #1: People Face Tradeoffs
To get one thing, we usually have to give up something else.
Think of the allocations of your time and money etc.
If you buy a new iPhone today, you have to wait before buying a new
laptop.
If you invest in TFSA, you are giving up other forms of investments, such as
RESP and RRSP.
For every hour you spend on studying, you could have worked.
Society faces the tradeoff between efficiency and equity.
Efficiency: getting the most out of resources.
Equity: fairness of economic allocation
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Efficiency can be referred to the economic pie, and equity to how the economic
pie is divided among society’s members.
Principle #2: The Cost of Something is What You Give Up to
Get It
Opportunity cost : what you give up to obtain something.
To become a doctor, you need to go to medical school. In addition, you are
giving up other career paths.
Waiting in a long line for a free item costs your time.
“There is no such thing as free lunch.”
Principle #3: Rational People Think at the Margin
Rational people: someone always try to do their best to achieve their objectives.
In economics, we usually assume that firms’ objective is to maximize its profit
and consumers' objective is to achieve the highest level of satisfaction.
Marginal changes: small incremental adjustments to an existing situation or plan.
Rational people make decision by comparing marginal benefits and marginal
costs.
Suppose you have already eaten 3 tacos. Whether to have an extra taco
depends on price of the taco (marginal cost) and the extra satisfaction it
gives (marginal benefit).
To study one more hour the night before the exam has benefits and costs
(less sleep).
Principle #4: People Responds to Incentives
Incentive: something, such as a punishment or reward, that induces action.
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