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Chapter 1

Economics Lecture 1 - Chapter 1 and 2.docx

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Bridget O' Shaughnessy

10 Principles of Economics 08/01/2013 6:02:00 PM HOW PEOPLE MAKE DECISIONS 1. People face tradeoffs 2. The cost of something is what you give up to get it  opportunity cost 3. Rational people think at the margin  edge/ extra/ additional (if benefit is better than the cost, you‟re going to do it) 4. People respond to incentives  governments, businesses, employers, professors to change behaviour HOW PEOPLE INTERACT 5. Trade can make everyone better off  key word: can, not will 6. Markets tend to increase efficiency  efficiecncy: how much stuff we make (more stuff equals more efficient), markets: centrally planned economies 7. Sometimes the government can eliminate market inefficiencies  When we have something called externalities, markets are not efficient, markets tend to produce too much or too little HOW THE ECONOMY AS A WHOLE WORKS 8. A country‟s standard of living depends on its productivity 9. Prices increase when the government prints too much money 10. There is a short-run trade off between inflation and unemployment LECTURE 2 08/01/2013 6:02:00 PM 1. Why is economics difficult? Express ideas in economics  English language (People buy less coffee when the price of coffee rises)  Algebra/ equations  Diagram/ graph  Translate between each different form of communication 2. Economics is a social science  Social= people  Science= use scientific method o Observe o Theorise o Test theory (go back to theory if doesn‟t work, continue) 3. Microeconomics vs Macroeconomics  Microeconomics: individual households and firms and how they interact  Macroeconomics: economy-wide phenomena such as interest rates, unemployment, money, and growth 4. Efficiency vs equity  Efficiency is the size of the pie  Equity is how the pie is divided (give up some equity to get a better pi
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