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Macroeconomics 1.docx

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Department
Economics
Course
ECON 201
Professor
Dr.Neri
Semester
Winter

Description
Macroeconomics Chapter 1  Scarcity: the limited nature of society’s resources.  Economics: the study of how society manages scarce resources.  Principle 1: People Face Tradeoff’s  “no such thing as a free lunch”  Give up something to get another  Guns and butter, efficiency and equality  Efficiency: property of society getting the most it can from its scarce resources (size of pie)  Equality: property of distributing economic prosperity uniformly among the members of society (how pie divided)  Principle 2: The cost of Something is What you Give up to Get it  Opportunity cost: whatever must be given up to obtain some item.  Principle 3: Rational People Think at the Margin  Rational people: people who systematically and purposefully do the best they can to achieve their objectives.  Marginal change: a small incremental adjustment to a plan of action.  Rational people make decisions by comparing marginal benefits and change.  When things are plentiful the marginal benefit is low.  Principle 4: People Respond to Incentives  Incentive: something that induces a person to act  Increase price tells sellers to produce more and buyers to buy less.  Taxes- gas taxes incentive to drive small cars.  Principle 5: Trade Can Make Everyone Better Off  Trade allows us to specialize in what we do best and buy a greater variety of goods and service at a lower price.  Principle 6: Markets are Usually a Good Way to Organize EconomicActivity  Market economies: an economy that allocates resources through the decentralized decisions of many forms and households
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