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Chapter 1

ECON 201 Chapter Notes - Chapter 1: Opportunity Cost, Capital Good, Marginal Cost

Course Code
ECON 201
Jason Aran

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Scarcity - the condition that arises because wants exceed the ability of resources to satisfy them.
The ability of each of us to satisfy our wants is limited by the time we have, the incomes we earn, and the prices
we pay for the things we buy.
Everyone has unsatisfied wants because of the limited productive resources.
Economics Defined
Economic is the social science that studies the choices that individuals, business, governments, and entire
societies make as they cope with scarcity and the incentives that influence and reconcile those choices.
Two questions
1. How do choices end up determining what, how, and for whom goods and services get produced?
2. When do choices made in the pursuit of self-interest also promote the social interest?
What, How, and For Whom?
Goods and services are the objects and actions that people value and produce to satisfy human wants.
When is the Pursuit of Self-Interest in the Social-Interest?
Self-interest – the choices that are best for the individual who makes them.
Social-interest – the choices that are best for society as a whole.
Core Economic Ideas
1. People make rational choices by comparing costs and benefits
2. Cost is what you must give up to get something
3. Benefit is what you gain when you get something and is measured by what you are willing to give
up to get it
4. A rational choice is made on the margin
5. Choices respond to incentives
Rational Choice
Most basic idea of economics is that when people make choices they act rationally
Rational choice – a choice that uses the available resources to the best achieve the objective
of the person making the choice.
Chapter 1
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