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ECON 101 (172)
Chapter 1

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ECON 101
Ratna Shrestha

Economics is a subject that studies economics behaviour of people. Scientific research: assumptions before studying subject Basic assumption: Rational behaviour (Always want more goods, money, happiness; 'selfish'; always want to maximize happiness/utility) But there are limited resources (scarcity of resources); Conflicts with ^ Must be a way to decide how resources are allocated 2 ways: Command economy (somebody decide for everybody else); Market economy Competition for the limited resources Competition through price system (determines ownership - highest bidder gets the good) Try to maximize happiness: given constraints Limited time (24hr/day), budget; prices Individual household, firms Firms buy own raw material and use own technology Production Possibilities Frontier: shows all the possible combinations of goods that can be produced To produce more cars = higher marginal cost People Face Tradeoffs If government does something, (spends in education), 100 dollars maximizes welfare --> spent efficiently equity: everybody benefitted equally, (if two people, each receive 50, equal, but not efficient because maximum is 110.) Speak from one side: 50+50=100 (so-so equity, action is equitable, equal) Speak from other side: 100+10=110 (not equal, but more efficient) Equality and efficiency may not happen at the same time Government: absolute equality would be cost of much efficiency, tries to find balance through taxation Government can improve market +100 (I like to play loud music) Loud music at the expense of your neighbour -200(Next door studying for examine) Outcome: -100 (not maximizing welfare) Government can now improve market (Laws, no public nuisance) Must dump garbage, but don't want to drive 50 miles, so dump in next door neighbour's yard Government has restrictions (improves market) Selling used car, good condition but buyer has doubts Provide a warranty (signals to buyer whatever I'm selling is good quality) The cost of Something is what you give up to get it - opportunity cost i.e. microeconomics course, opportunity cost = cost to take course, books, time, etc Marginal means one more. Choose whichever benefits you more Responding to incentives: i.e BOGO (working 40 hours a week, ot = 1.5 pay
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