ECO 1102 Lecture Notes - Lecture 1: Opportunity Cost, Positive Statement, Market Failure
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22 May 2018
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CHAPTER 1: MACROECONOMICS AND LIFE
• Economics is the study of how people manage resources.
• Decisions made by individuals and also by groups.
• Resources are both physical objects and intangibles such as time.
• Economics is divided into two broad fields:
• Microeconomics: Study of individuals and firms.
• Macroeconomics: Study of the economy on a regional, national, or international scale.
Scarcity
• People make decisions aimed at getting the things they want.
• People want a lot of things, but they are constrained by limited resources.
• Scarcity is the oditio of peoples’ ats eig greater tha aailale resoures.
– Idiiduals’ resoures: tie ad oey.
– “oieties’ resoures: fators of produtio, suh as labour and technology.
Opportunity Cost
• Every decision in life involves weighing the trade-off between costs and benefits.
– Rational behavior dictates that when people choose between two things, the one with
the greatest net benefit (benefits minus costs) is chosen.
• The benefits are often easily calculated.
• The costs include both the direct cost and opportunity cost.
– The direct cost includes all associated costs.
– The opportunity cost includes the value of the next best alternative.
Opportuity ost is ased o people’s aluatio of the est alteratie.
• Rational behavior suggests that people compare the additional benefits of a choice against the
additional costs.
– Referred to as marginal decision making.
– No consideration of past benefits or costs, both referred to as sunk.
• Opportunity cost helps understand adages suh as the ehai’s ar is the orst oe o the
lok.
• Accurately spotting the fundamental economic concepts at work in the world is sometimes
difficult.
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Economics is the study of how people manage resources: decisions made by individuals and also by groups, resources are both physical objects and intangibles such as time. Economics is divided into two broad fields: microeconomics: study of individuals and firms, macroeconomics: study of the economy on a regional, national, or international scale. Scarcity: people make decisions aimed at getting the things they want, people want a lot of things, but they are constrained by limited resources. Scarcity is the (cid:272)o(cid:374)ditio(cid:374) of peoples" (cid:449)a(cid:374)ts (cid:271)ei(cid:374)g greater tha(cid:374) a(cid:448)aila(cid:271)le resour(cid:272)es. O(cid:272)ieties" resour(cid:272)es: fa(cid:272)tors of produ(cid:272)tio(cid:374), su(cid:272)h as labour and technology. Every decision in life involves weighing the trade-off between costs and benefits. Rational behavior dictates that when people choose between two things, the one with the greatest net benefit (benefits minus costs) is chosen. The costs include both the direct cost and opportunity cost. The direct cost includes all associated costs. The opportunity cost includes the value of the next best alternative.
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