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Lecture 2

AP ECON-1000 (Lecture 2 Notes).docx

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Department
Economics
Course
ECON 1000
Professor
Sadia Mariam Malik
Semester
Winter

Description
AP ECON - 1000 Lecture 2: Thursday, January 9 , 2014 Lecture Topic: What is Economics and Economic Way of Thinking? Key Principles and Concepts Required reading: Chapter 1 What is the basic economic problem that gives reason to study economics? Scarcity – Our inability to satisfy all our wants. Wants are unlimited and resources are limited. Choices and Trade-offs Scarcity requires choices and choices involve trade-offs. Thinking about a choice as a trade-off emphasizes cost as an opportunity forgone. Opportunity Cost – The highest-valued alternative that we give up to get something of the activity chosen. Economics is a social science that studies how individuals, businesses, governments, and entire societies cope with scarcity and make best possible choices/decisions given the resources constraints that they face. EconomicAgents 1) Consumers – what to consume and what not to consume 2) Producers – what to produce, how much to produce in what 3) Governments – limited budgets, how to disperse costs and budgets Rational Behaviour: when we weigh the cost and benefits of an activity. Economists assume that all economic agents are rational. The goal of a consumer is to maximize Net Benefit from consumption. (Total Benefit – Total Cost) The goal of a producer or firm is to maximize profits. (Total Benefit – Total Cost) The goal of a government is to maximize Net Social Benefit. (Total Social Benefit – Total Social Cost = Efficiency) Optimal Point – The point where the goal chosen is reached. Marginal Benefit – The benefit from pursuing an incremental increase in an activity. Marginal Cost – The opportunity cost of pursuing an incremental increase in an activity. If Marginal Benefit is higher than the Marginal Cost you would increase the activity. If Marginal Cost exceeds Marginal Benefit, people have an incentive to do less of that activity. When Marginal Benefit is equal to the Marginal Cost the Optimal Point has been reached. Two Big Economic Questions How do choices end up determining what, how and for whom goods and services get produced? Goods and services are the objects that people value and produce to satisfy human wants. • What a country produces for goods and services varies. Factors of production – productive resources that produce goods and services. • Land: “gifts of nature”
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