ECN 204 Chapter Notes -Invisible Hand, Demand For Money, Market Failure
25 Apr 2012
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Document Summary
Management of society"s resources is important because resources are scarce. Economics: the study of how society manages its scarce resources. Resources are allocated not by a single central planner but through the combined actions of millions of households and firms. One tradeoff that a society faces is between efficiency and equity. Efficiency: the property of society getting the most it can from its scarce resources. Equity: the property of distributing economic prosperity fairly among the members of society. Efficiency refers to the size of the economic pie, equity refers to how the pie is divided. Principle #2: the cost of something is what you give up to get it. Opportunity cost: whatever must be given up to obtain some item. Principle #3: rational people think at the margin. Rational people: people who systematically and purposefully do the best they can to achieve their objectives. Marginal changes: small incremental adjustments to a plan of action.
