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Study Guide

ECON101 Study Guide - Fall 2018, Comprehensive Midterm Notes - Opportunity Cost, Marginal Utility, Marginal Cost


Department
Economics
Course Code
ECON101
Professor
Corey Van De Waal
Study Guide
Midterm

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ECON101
MIDTERM EXAM
STUDY GUIDE
Fall 2018

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1.3 The Economic Way of Thinking
- Key components within the economic way of thinking include choice and
trade-offs, choice and change, choice and opportunity cost, choice and the
margin, and choice and incentives
o Choice and trade-offs
when we choose, we are actually making trade-off
we decide to consume one item over another item
o Big trade-off: efficiency vs. equity
Efficiency relates to society obtaining the most it can from
scarce resources
Equity relates to distributing prosperity freely among all
members of society
o Choice and change
Choices evolve over time and evolve for many reasons
Ex: we no longer desire to consume media on videotape
or DVD, we now consume media using streaming
services
Our preferences change, and our choices change with
those preferences
o Choice and opportunity cost
Opportunity cost: the highest value alternative that we must
give up in order to get
Choices have associated opportunity costs; nothing is for free
o Choice and the margin
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When we make a choice, we want to make the choice such
that what we gain is greater than what we give up
Choices are made in small steps and influenced by incentives
Small steps = margin
At the margin, we are comparing marginal benefits to
marginal costs
When we make choices, we look at the additional
benefits which is the marginal benefit, of an increase in
activity vs. the additional cost which is the marginal cost
People will choose when marginal benefit is > than
marginal cost
o Choice and incentives
Incentives influence your decisions
Individuals will respond to rewards or penalties when
considering choice
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