EC120 Lecture Notes - Lecture 1: Opportunity Cost, Perfect Competition, Rationality
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Marginal cost general question asking if you can change something by a small amount, how much does it cost. Positive question there is a right answer. Normative question many different point of views, answers, etc. Economics the study of how society manages scare resources. Scarcity the li(cid:373)ited (cid:374)ature of so(cid:272)iety"s resour(cid:272)es. If a resource is scarce use of resource involves an opportunity cost; if we use a resource for one thing, we cannot use it for another. Microeconomics the decisions made by people, firms, households, firms, and how they interact in an economy. Macroeconomics aggregated economic outcomes such as inflation, unemployment or economic growth. Principle #1 to #4 rationality: tradeoffs: efficiency vs equity, opportunity cost, decisions are made at the margin, people respond to incentives: changing opportunity costs at the margin affects tradeoffs and choices. Math can demonstrate where intuition breaks down, allows for assessment of feedback effects, allow us to visualize complicated problems.
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