ECN 101 Chapter Notes - Chapter 1: Ceteris Paribus, Dependent And Independent Variables, Full Employment
ECN 101
Chapter 1
Sept 7
The Economic Way of Thinking
Economics - when individuals, institutions, and society make optimal choices under
condition of scarcity.
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10 Key Concepts:
1. Facing trade-offs (scarcity in relation to wants)
2. Opportunity cost
3. Choosing a little more or less
4. The inļ¬uence of incentives
5. Specialization and Trade
6. The Effectiveness of Markets
7. The role of government
8. production and the standard of living
9. money and inļ¬ation
10. Inļ¬ation, unemployment, trade off
-Scarcity and Choice
-- Unlimited wants and limited (or scarcity) resources deļ¬nes what economics is about,
-- Unlimited wants include non-material wants. (living longer still requires resources
-- Scarcity of economic resources restricts options and requires choices to be made
-- Thereās no free lunch; a lunch has to be made by someone
-- The opportunity cost of a choice is what forgone for that choice: If you choose to party, you
cant study.
Free for all? -
Products provided for free to individual, and not free to society (requires use of scare
resources) .
Companies use free for promotions.
Nothing can be free; all requires scare resources.
Purposeful Behaviour
- Individuals maximize utility (pleasure of usefulness - smoking weed)
Marginal Analysis: Comparing Beneļ¬ts and Costs
- Our choices are made on weighing the marginal (extra) costs and marginal (extra)
beneļ¬ts.
Example: Fast Food
1. People choose the shortest line to reduce time cost.
2. Lines tend to have equal lengths as people shift from longer to shorter lines in effort to
save time.
3. Lines are chosen on lengths without much info - cost of obtaining more info is not
worth the beneļ¬t. imperfect info may cause leaving or long waiting.
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find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Economics - when individuals, institutions, and society make optimal choices under condition of scarcity. - unlimited wants and limited (or scarcity) resources de nes what economics is about, - unlimited wants include non-material wants. (living longer still requires resources. - scarcity of economic resources restricts options and requires choices to be made. - there"s no free lunch; a lunch has to be made by someone. - the opportunity cost of a choice is what forgone for that choice: if you choose to party, you cant study. Products provided for free to individual, and not free to society (requires use of scare resources) . Nothing can be free; all requires scare resources. Individuals maximize utility (pleasure of usefulness - smoking weed) Our choices are made on weighing the marginal (extra) costs and marginal (extra) bene ts. Testing this h by comparing the actual outcomes to the hypothesis predictions. Then the hypothesis evolves into the theory or model.