ECO101H1 Lecture Notes - Lecture 2: Consumer Choice, Budget Constraint, Smallpox Vaccine
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ECO101H1 Full Course Notes
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Document Summary
We can highlight seven core principles/ideas of microeconomics. Any economics model usually includes: assumptions about behaviour (how people make decisions, assumptions about interactions. People face tradeoffs there"s no such thing as a free lunch. Societies face tradeoffs as well: (guns vs butter, clean environment vs economic growth, efficiency vs equity, there is no right answer as to the correct mix (normative economics) The cost of something is what you give up to get it (opportunity cost: because individuals face tradeoffs, making rational decisions requires comparing the costs and benefits of alternative courses of actions. Rational decision maker takes an action only if the marginal benefit of the actions exceeds the marginal cost. People respond to incentives people make decisions by comparing costs and benefits, their behaviour may change when costs/benefits change. Public policy is used by gov"t and ignores this possibility: safety regulation, taxes, subsidies to fisheries.
