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Chapter 1

ECO2023 Chapter Notes - Chapter 1: Allocative Efficiency, List Of Fables Characters, Marginal Utility

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John Slattery

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Chapter 1 Economics: Foundations and Models
To attain our goals, we must make choices
o Scarcity- causes us to make choices because we live in a world of scarcity. Our wants are
unlimited, yet our resources are limited
Limits the ability to obtain goal
Economics Study of the choices consumers, managers, and officials make to attain their goal,
given their scarce resources
o People are rational
o People respond to economic incentives
o Optimal decisions are ade at the margin
Economic Models simplified versions of reality used to analyze the real-world economic
o A market Group of buyers and sellers of a good or service and the institution or
arrangements by which they come together to trade.
People are Rational
o Economist assume that people are rational. GENERALIZED
o Assumed that consumers and firms use all available information as they act to achieve
their goals.
Weigh benefits and cost of each action. Choose action that benefits cost
People Respond to Economic Incentives
o Economist emphasize that consumers and firms consistently respond to economic
Optimal Decisions Are Made at the Margin
o “oe decisios are all or othig
o Marginal is used as extra or additional (Marginal Benefit vs Marginal cost)
o Economist reason that the optimal decision is to continue any activity up to the point
where marginal benefit equals the marginal cost
Comparing marginal benefits and marginal costs is known as marginal analysis.
Chapter 1.2 The Economic Problem That Every Society Must Solve
Every society faces trade-offs
o Producing more of one good or service means producing less of another good or service.
The best measure of the cost is producing a good or service is the value of what
has to be given up producing it
Opportunity cost highest valued alternative that must be given up to engage in
that activity.
What Goods and Services Will Be Produced?
o Consumers, managers of firms, and policymakers face the problem of scarcity by trading
off one good or service for the other.
o Each choice made comes with an opportunity cost, measured by the value of the best
alternative given up
How Will the Goods and Services Be Produced?
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find more resources at oneclass.com
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