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ECON 101
Eva Lau

Economics 101 1. Scarcity and Choice (Chapter 1 and 2) a. Wants and scarcity; self-interest, social interest  Scarcity: o Inability to get everything we want, universal, confronts all living things o Not an independent problem, relative to human wants o Choosing alternatives o Everyday life applications o Decisions involve cost, benefit is simple, cost is painful  Economics: social science that studies the choices that individuals, governments and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices  Microeconomics: study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments  Self-interest: choice is the best one available for you  Social interest: it leads to an outcome that is the best for society as a whole o Efficiency is achieved when the available resources are used to produce goods and services at the lowest possible cost and in the quantities that give the greatest possible value or benefit; Situation in which resources are put to their best possible use o Equity or fairness b. Normative and positive economics i. Normative economics deals with norms, values, opinions, preferences, likes and dislikes etc ii. Positive economics more objective, deals with facts, reasons, evidences c. Opportunity Cost  How much does it really cost?  Opportunity cost = value of the best forgone alternative to any decision  All actions carry opportunity costs  Opportunity costs are true economic costs  What you have to give up  Too simplistic to just discuss the financial/monetary cost, explore other forms of cost (social etc.)  Explicit and implicit cost  Cost associated with what you must give up (time, money, effort, career, relationship etc.) to get something  Benefits forgone is considered as an opportunity cost  NOT all the possible alternatives foregone, can be a composite cost  Different for everyone  Can use opportunity cost to measure the value of intangibles (e.g. time saved in monetary value, value of life)  Shadow pricing – not looking at market price (same for everybody, means different things to different people e.g. high income vs low income) d. Total vs Marginal value  If the Canadian government undertakes a public project in Canada where total benefits exceed total cost, then do you think that economic surplus in Canada is positive or do you think economic surplus in Canada is rising? o Wellbeing has improved, deficit becomes smaller, just because one project is positive doesn’t mean the whole economy is good now  Total = everything, marginal = specific  Marginal benefit > marginal cost, some improvement  Marginal Value Analysis o Marginal analysis is an incremental analysis o Marginal = incremental o In production, the incremental cost incurred when one additional unit of x is pr
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