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ECN 104 (387)
Chapter 1

ECN104 - Chapter 1 Review.docx

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Department
Economics
Course
ECN 104
Professor
Helene Moore
Semester
Fall

Description
ECN104 ­  CHAPTER 1 WHAT ECONOMICS IS ALL ABOUT? • Scarcity: limited nature of society's resources  • Economics: study of how society manages its scarce resources   Ex: how people decide what to buy, how much to work, save and spend  HOW PEOPLE MAKE DECISIONS? PRINCIPLE#1:  People Face Tradeoffs • Example: going to the party night before your midterm leaves less time for studying  • To have more money requires long hour shifts at work, leaving less time for leisure  • Efficiency vs. Equality  Efficiency: when society gets most from the scarce resources   Equity: when wealth is distributed uniformly among society's members  Tradeoffs: to achieve greater equality, could redistribute income from wealthy person to  poor. But this reduces motivation to work and produce. This shrinks the size of the  economic "pie PRINCIPLE#2: The Cost of Something is What You Give Up To Get It • Comparing the costs and benefits of alternative choices  • Opportunity Cost of any item is whatever must be given up to obtain it • Example: going to college for a year is not just the tuition, books, and fees, but also the  foregone wages.…seeing a movie is not just the price of the ticket,  but the value of the time you spend in the cinema PRINCIPLE#3: Rational People Think at the Margin • Rational People: they do the best they can to achieve their objectives   they make decisions by evaluating costs and benefits of marginal changes­ small  adjustments to an existing plan  Example: When a student considers whether to go to college for an additional year, he  compares the fe
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