ECON 2100 Lecture Notes - Lecture 1: Sunk Costs, Opportunity Cost, Invisible Hand
Document Summary
Scarcity: the limited nature of society"s resources relative to unlimited human"s want. Economics: the study of how society manages its scarce resources. Society: how to divide its resources between national defense, consumer goods, protecting the environment, etc. Due to scarcity, all decisions involve tradeoffs: to get one thing, we usually have to give up another thing. Protecting the environment requires resources that could otherwise be used to produce consumer goods. Efficiency means society gets the most that it can from its scarce resources. (size of the pie) Equity means the benefits of those resources are distributed fairly among the members of society. (distribution of the pie) Making decisions requires comparing the costs and benefits of alternative choices. The opportunity cost of an item is what you give up to obtain it. Rational people make decisions by comparing marginal costs (mc) and marginal benefits (mb) of an action:
