ECC1000 Study Guide - Midterm Guide: Marginal Cost, Opportunity Cost, Marginal Utility

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Week 1 ā€“ Chapters 1, 2, 3
Chapter 1: Ten Principles of Economics
The management of societyā€™s resources is important because resources are scarce.
ā€¢ Scarcity means that society has limited resources and therefore cannot produce all the goods and
services people wish to have.
ā€¢ Just as each member of a household cannot get everything she wants, each individual in a society
cannot attain the highest standard of living to which she might aspire.
Economics is the study of how society manages its scarce resources. In most societies, resources are
allocated not by an all-powerful dictator but through the combined choices of millions of households and
firms.
ā€¢ Economists, therefore, study how people make decisions: how much they work, what they buy, how
much they save, and how they invest their savings.
ā€¢ Economists also study how people interact with one another.
How people make decisions
Principle 1: People face trade-offs
ā€¢ When people are grouped into societies, they face different kinds of trade-offs.
Consider a student who must decide how to allocate her most valuable resourceā€”her time.
ā€¢ She can spend all of her time studying economics, spend all of it studying psychology, or divide it
between the two fields.
ā€¢ For every hour she studies one subject, she gives up an hour she could have used studying the
other.
ā€¢ And for every hour she spends studying, she gives up an hour that she could have spent napping,
bike riding, watching TV, or working at her part-time job for some extra spending money.
Another trade-off society faces is between efficiency and equality.
ā€¢ Efficiency means that society is getting the maximum benefits from its scarce resources.
ā€¢ Equality means that those benefits are distributed uniformly among societyā€™s members.
ā€¢ In other words, efficiency refers to the size of the economic pie, and equality refers to how the pie is
divided into individual slices.
When government policies are designed, these two goals often conflict.
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Document Summary

The management of society"s resources is important because resources are scarce: scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Just as each member of a household cannot get everything she wants, each individual in a society cannot attain the highest standard of living to which she might aspire. Economics is the study of how society manages its scarce resources. Principle 1: people face trade-offs: when people are grouped into societies, they face different kinds of trade-offs. Another trade-off society faces is between efficiency and equality: efficiency means that society is getting the maximum benefits from its scarce resources, equality means that those benefits are distributed uniformly among society"s members. In other words, efficiency refers to the size of the economic pie, and equality refers to how the pie is divided into individual slices.

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