ECON 102 Lecture Notes - Marginal Utility, Opportunity Cost, Decision Rule
16 Oct 2011
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Document Summary
Scarcity refers to the limited nature of society"s resources. Going to a party the night before your midterm leaves less time for studying. Having more money to buy stuff requires working longer house, leaving less time for leisure. Society faces an important tradeoff: efficiency vs. equity. Efficiency: getting the most out of our scarce resources. Equity: distributing prosperity fairly among society"s members. Tradeoff: equity can be improved by redistributing income from the well-off to the poor. But this reduces the incentive to work and produce, and shrinks the size of the economic pie. Principle 2: the cost of something is what you give up to get it. Making decisions requires comparing the costs and benefits of alternative choices. Opportunity cost: whatever must be given up in order to obtain something. Going to college for a year is not just the tuition, books, and fees, but also the foregone wages.
