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Economics 1021A: Ch 1 Textbook Notes.docx

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Economics 1021A/B
Irene Trela

Review: What is produced? 1. Agriculture 2. Manufacturing 3. Services How are these things produced? Factors of production: land, labour, capital, entrepreneurship For whom are goods and services produced? Depends on peoples’ incomes. Land  rent, labour  wage, capital  interest, entrepreneurship  profit Wage produces 70% of the income, and the rest share the 30%. What is a tradeoff? A tradeoff is an exchange— you must give up one thing in order to have another. Example: Going home later in order to sell my Math 1228 textbook. What does it mean to make a rational choice? A rational choice, in economics, is one in which the benefits are maximized and the costs are minimized. Why is opportunity cost the best forgone alternative? The opportunity cost of something is the value of the “best” alternative that must be given up to get something else. Example: The opportunity cost of not pursuing a university degree is the increased wage one would receive after finishing a university degree. What does it mean to choose at the margin? There are two kinds of margins: marginal cost and marginal benefit. Marginal cost is the opportunity cost of an increase in activity, meaning that any previous activity is not taken into consideration. Marginal benefit is the benefit that comes from this increase in activity. Example: Studying the night before a final. Marginal cost is the amount of time spent studying r
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