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Chapter 1

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Department
Economics
Course
ECN 104
Professor
Frank Trimnell
Semester
Fall

Description
ECN104 Alyssa Soubliere Ryerson University ChapterOneNotes (THREE QUESTIONS ON FINAL): Principles of Economics: 1. People face trade-offs; -“there is no such thing as a free lunch” -to get one thing, you have to give up another thing that we like - For each hour I study microeconomics, I give up one hour I could spend studying ITM -Guns and butter conundrum (the most we spend on national defense, the less we can spend on consumer goods) - Trade-off between efficiency and equity (efficiency is the size of the economic pie, and equity is how it is divided) 2. The Cost of Something is What You Give Up to Get It: -Comparing the costs and benefits of alternate courses of action -“Whether to go to University, the greatest cost is your time (you cannot work during this time meaning you cannot earn money). - Opportunity costs that accompany each action 3. Rational People Think at the Margin; - Economists assume all people are rational -Rational people compare marginal benefits and marginal costs -E.g. of the plan selling a ticket for $200 less than average cost because since the passenger will pay more than the marginal cost (the bag of peanuts and soda he will consume), it will be profitable for the airline -Water is cheap and diamonds are expensive? People pay for any good is based on the marginal benefit an extra unit of the good will yield. Water is a plentiful resource, and diamonds are rare, so people consider the marginal benefit of an extra diamond to be large. 4. People Respond to Incentives; - Incentive (e.g. is the prospect of a punishment or reward) -People respond to incentives because they are rational and compare costs and benefits -When the price of an apple rises, people decide to eat more pears and fewer apples because the cost of buying an apple is higher at the same time apple orchards decide to hire more workers and harvest more apples because the benefit of selling an apple is higher 5. Trade Can Make Everyone Better Off; -trade between two countries can make each country bet
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