EC 110 Lecture Notes - Strategic Dominance, Tax Incidence, Passive Smoking
27 Apr 2014
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Document Summary
Economics study of how society manages its scarce resources. Principle #1: people face tradeoffs: all decisions involve tradeoffs. Having money = more hours / friendly environment = less production of goods. Efficiency when society gets the most from its scarce resources. Equality prosperity is distributed uniformly among society"s members. Tradeoff: to achieve greater equality redistribute income from wealthy to poor. But this reduces incentive to work and produce. It"s a relevant cost for decision making: ex. Seeing a movie lost time in theater (working time) Principle #3: rational people think at the margin. Systematically and purposefully do the best they can to achieve their objectives: make decisions by evaluating costs and benefits of marginal changes, marginal changes incremental adjustments to an existing plan, ex. Principle #4: people respond to incentives: rational people respond to incentives. Incentive: something that induces a person to act. i. e. prospect of a reward/punishment: ex. Gas prices rise more hybrid cars produced.
