Textbook Notes (280,000)
CA (160,000)
Ryerson (10,000)
ECN (800)
ECN 104 (300)
Chapter 1

Chapter 1


Department
Economics
Course Code
ECN 104
Professor
Halis Yildiz
Chapter
1

This preview shows pages 1-2. to view the full 8 pages of the document.
Chapter 1: Limits, Alternatives and Choice seat #: 1665
1.1 Ten Key Concepts to Retain for a Lifetime
The Individual:
Facing Tradeoffs:
Scarcity in relation to wants means you face tradeoffs; you have to make choice
To get one thing, we usually have to give up another thing
Efficiency: society gets the most that it can from its scarce resources
Equity: the benefits of those resources are distributed fairly among the members of
society
Making decisions requires trading off one goal against another
Opportunity Cost:
The cost of the choice you make is what you give up for it, or the opportunity cost
Decisions require comparing costs & benefits of alternatives
Choosing a Little More/Less:
Choices are usually made at the margin; we choose a “little more or a “little less of
something
Marginal changes are small, incremental adjustments to an existing plan of action
Make decisions by comparing costs and benefits at the margin
The Influence of Incentives:
Choices you make are influenced by incentives
Marginal changes in costs/benefits motivate people to respond: MB vs. MC
Discounts & sales
Interaction Among Individuals:
Specialization and Trade:
Specialization and trade will improve the well-being of all participant
People gain from their ability to trade with one another
www.notesolution.com

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

Competition results in gains from trading
Trade allows people to specialize in what they do best
The Effectiveness of Markets:
Markets usually do a good job of coordinating trade among individuals, groups, and
nations
Market economy allocates resources through the decentralized decisions of many firms
& households as they interact in markets for goods/services
Invisible hand
The Role of Government:
Governments can occasionally improve the coordinating function of markets
Market failure occurs when market fails to allocate resources efficiently, government
can intervene to promote efficiency & equity
The Economy as a Whole and The Standard of Living:
Production and The Standard of Living:
Standard of living of the average person in a particular country is dependent on its
production of goods/services
Rise in standard of living requires a rise in output of goods/services
Money and Inflation:
If the monetary authorities of a country annually print money in excess of the growth
of output of goods/services it will eventually lead to inflation
Inflation-Unemployment Tradeoff:
In the short run, society faces a short-run tradeoff between inflation and its level of
unemployment
1.2 The Economic Way of Thinking
Economic perspective: a view point that envisions individuals, institutions and society make optimal
(best) choices under conditions of scarcity
Scarcity: society has limited resources and therefore cannot produce all the goods/services people wish
to have, limits options & necessities that we make choices
www.notesolution.com
You're Reading a Preview

Unlock to view full version

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

Opportunity cost: the amount of other products that must be for gone/sacrificed to produce a unit of a
product
Utility: the satisfaction a person gets from consuming a good/service
Purposeful behaviour: people make decisions with some desired outcome in mind
Marginal analysis: the comparison of marginal (extra/additional) benefits and marginal costs,
usually for decision making
Any economic activity should expand as long as MARGINAL BENEFIT>MARGINAL COST and should
reduce if MARGINAL COST> MARGINAL BENEFIT
1.3 Theories, Principles, and Models
Scientific method: the systematic pursuit of knowledge through formulating problem, collecting data,
and formulating and testing hypothesis to obtain theories, principles and laws
Economic principle: a statement about economic behaviour/the economy that enables prediction of the
probable effects of certain actions
Generalization: principles relating to economic behaviour/the economy; expressed as the
tendencies of typical/overage consumers, workers, business firms
Other-things-equal assumption: the assumption that factors other than those being considered
are held constant
Graphical expression
1.4 Microeconomics and Macroeconomics
Microeconomics: part of economics concerned with such individual units as industries, firms,
households
Macroeconomics: part of economics concerned with economy as a whole
Aggregate: collection of specific economic units treated as if they were one unit
Positive economics: analysis of facts to establish cause-and-effect relationships
Normative economics: involving value judgements about what the economy should be like
1.5 The Economic Problem
Economic problem: need to make choices because societys material wants for goods/services are
unlimited
Limited income: in forms of wages, interest, rent, profit
Unlimited wants: necessities (food, shelter, clothing), luxuries (yachts, sports cars)
www.notesolution.com
You're Reading a Preview

Unlock to view full version