EC120 Chapter Notes - Chapter 1: Opportunity Cost, Market Failure, Invisible Hand
30
EC120 Full Course Notes
Verified Note
30 documents
Document Summary
Economics: science of choice the study of how society manages it scarce resources (e. g. ) How people decide what to buy, how much to work, save and spend. How firms decide how much to produce, how much workers to hire. How society decides how to divide its resources b/t national defence, consumer goods, protecting the environment and other needs. Principle 1: people face tradeoffs giving up something for something else. All decisions involve tradeoffs (eg, going to a party the night before your midterm leaves less time for studying) Society faces an important tradeoff: efficiency vs equity. Efficiency: when society gets the most from its scarce resources. Tradeoff: to achieve greater equality, could redistribute income from wealthy to poor. But this reduces incentive to work and produce, shrinks the size of the economic pie . Principle 2: the cost of something is what you give up to get it. Making decisions requires comparing the costs and benefits of alternative choices.
