ECON 2020 Lecture Notes - Lecture 1: Opportunity Cost, European Cooperation In Science And Technology, Invisible Hand

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5 Feb 2017
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Chapter 1
1/12/17 -
I. What is Economics?
a. Economics: study of how society manages its scarce resources
i. Scarcity: all resources are limited
b. Examples
i. Individuals decision
ii. Firm decides how much to produce, how many workers
iii. Society determines resources and the production
c. Microeconomics: branch that focuses on how individuals make decisions and how
individual agents interact
i. Macro: focus on how whole economies make decisions/interact
d. Social science with mathematical rigor
II. How individuals make decisions
a. People make tradeoffs
i. Giving one thing up for another
b. Society faces tradeoffs
i. Efficiency vs. equality
ii. Efficiency: society gets the most from its scarce resources
iii. Equality: hen prosperity is distributed uniformly among society’s
members
iv. Okuns Leaky Bucket leakage during transfer
c. Cost of something is what you give up to get it
i. Cost and benefits
ii. Opportunity cost of any item is whatever must be given up to obtain it
iii. It is the relevant cost for decision making
d. Rational people think at the margin
i. Think of a systematic way to make their decision to achieve objective
ii. Objective function: mathematical function that is a goal “they” are
attempting to maximize
1. Consumers
2. Firms
iii. Profits = total revenue total cost
iv. Make decisions by evaluating cost/benefits of marginal change
1. Marginal change: adjustments to an existing plan
v. Individuals maximize objective function when: MARGINAL BENEFIT =
MARGINAL COST
vi. Net benefits = benefits cost
III. How trade can help people interact
a. People respond to incentives
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