ECON 2 Lecture Notes - Lecture 1: Marginal Cost, Sunk Costs, Marginal Utility

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13 Aug 2020
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Economics is the study of how people make choices under the conditions of scarcity and as a result, the results of those choices for society. Economic problem: unlimited wants need to be satisfied by scarce resources trade- offs are necessary. Resources can be divided into 4 ways: land, labour, capital, enterprise. Microeconomics is the study of individual consumer, firm and market behaviour. Macroeconomics is the study of the aggregate economy. Opportunity cost is the value of the next-best alternative to taking a particular action e. g. the opportunity cost of drinking coffee instead of tea is the tea. An individual/firm/society should take action only if the benefits exceeds the costs. Ceteris paribus (all other things being equal) assumption and rationality assumption must be applied when cost-benefit analysis is undertaken. Incentive principle: a person/firm is more likely to undertake the action if benefit rises and less likely to undertake it if its cost rises. Failing to account for all opportunity costs.

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