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Chapter 1

Econ 101- Chapter 1.pdf

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ECON 101
Ying Kong

1. Thinking Like an Economist 2013-04-22 10:03 PM • The Scarcity Problem: the resources available to us are limited, so we have to make choices (having more of one good thing usually means less of another) • The Cost-Benefit Principle: an individual (or a firm or a society) will be better off taking an action, only if the extra benefits from taking the actions are greater than extra costs --- extra benefits > extra costs  helps explain cause & effect, but not helpful in determining whether a policy is distributionally fair  fundamental tool for the study of how rational people make choices (ex 1.1, p5) • rational person: someone with well-defined goals who tries to fulfill them as best as they can • economic surplus: the benefit of taking any action minus its cost • opportunity cost: the value of the next-best alternative that must be sacrificed in order to undertake the activity  explicit costs: tangible costs (ex. wages, rent, material costs)  implicit costs: implied costs, lost opportunity in the use of a company's own resources (ex. loss of interest income on funds, or depreciation of machinery) • Positive Economics: objective economic analysis that offers cause-and- effect expl
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