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Chapter 1

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Department
Economics
Course
ECO105Y1
Professor
Paul Cohen
Semester
Fall

Description
Chapter 1: What’s in Economics for you? (Scarcity, Opportunity Cost, and Trade) Economics: How individuals, businesses, and governments make the best possible choices to get what they want, and how these choices interact in the market. Scarcity: The problem that arises because we all have limited; money, time. And energy -Scarcity means every choice involves a trade-off -Every dollar you spend involves choice, and because of scarcity it must be a smart choices. Opportunity Cost: Cost of best alternative given up. -Opportunity Cost is the key to mutual benefits from trade. -In weighing the benefits and costs of any decision, we compare what we get from each fork which what we give up from the other. For any choice (What we get), Its true cost is what we have to give up to get it. Incentives: Rewards and penalties for choice Voluntary Trade: With voluntary trade, each person feels that what he or she gets is of grater value then what he or she gives up. -When you “trade” money for coffee at Tim’s that is a voluntary exchange. If you thought you would be better off keeping the money instead of the coffee, you wouldn’t pay. If Tim’s weren’t better off with your money instead of coffee, they wouldn’t sell. Absolute Advantage: Ability to produce a product at a lower absolute cost than another producer Comparative Advantage: Ability to produce a product at a lower opportunity cost than another producer. -To determine comparative advantage it is best to use opportunity cost and measure it per unite of the product chosen. Opportunity Cost = Give Up Get -Opportuity cost of any choice is the value of the fork in the rode not taken -Voluntary tade is not a zero-sum game, whre one persons gain is the others loss. Both traders gain. Mutualy bennifical gains from trade are caused by differnece in comparative advantage. Absolute advantage Is not important. -Indivisuals in household untimatly own all the imputs of an economy—Labout (The ability to work), Narutal resources, capital equiptment, a
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