Textbook Notes (369,137)
Canada (162,407)
Economics (752)
ECON 1BB3 (343)
Chapter 1

Chapter 1 Note.docx

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Bridget O' Shaughnessy

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Chapter 1 Scarcity: the limited nature of society’s resources Economics: the study of how society measures its scarce resources, study how people make decisions while analyzing forces and trends that affect the economy as a whole Principles of Economics 1-4: how people make decisions 5-7: how people interact 8-10: workings of the economy as a whole Principle 1: People Face Tradeoffs  Making decisions requires trading off one goal against another  Efficiency: the property of society getting the most it can from its scarce resources  Equity: the property of distributing economics prosperity fairly among the embers of society Principle 2: The cost of something is what you give up to get it  Comparing the costs and benefits of alternative courses in action  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 purposely do the best they can to achieve their objectives  Marginal changes: small incremental adjustments to a plan of action  A persons willingness to pay for any good is based on the marginal benefit than an extra unit of good will yield  Rational decision maker takes an action if the marginal benefit of the action exceeds the marginal cost Principle 4: People Respond to Incentives  Incentive: something that induces a person to act  Auto safety incentives producer fewer deaths but more accidents Principle 5: Trade can make everyone better off  Allows each person to specialize in the activities he or she does best  People can buy a greater variety of goods and services at a lower cost Principle 6: Markets are usually a good way to organize economic activity  Theory behind central planning was that only the government could organize economic activity in a way that promotes economic well being for the country as a whole  Market economy: an economy that allocates resources through
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