ECN 104 Lecture Notes - Macroeconomics, Budget Constraint, Marginal Utility
Document Summary
Economics assumes that human behaviour reflects rational self-interest which means that people seek for opportunities that would help them make the most out of that opportunity (utility) the pleasure or satisfaction of consuming a good. Purposeful behaviour: people make decisions with some desired outcome in mind. Economics" major focus is on marginal analysis: comparisons of marginal benefits and marginal costs. Most choices are based on the changes in the status quo. Each choice will have marginal benefits and marginal costs: eg. You and your fianc are shopping for an engagement ring. The marginal cost of the larger diamond is the added expense beyond the smaller diamond. The marginal benefit is the greater lifetime pleasure (utility) form the larger stone. If the marginal benefit of the larger diamond exceeds its marginal cost, you buy the larger stone. Production possibilities change with international specialization and trade. International trade, the output limits imposed by its domestic production possibilities curve.
