ECON 101 Chapter Notes - Chapter 1: High Standard Manufacturing Company, Business Cycle, Invisible Hand
Document Summary
How people make decisions: people face trade offs. Ex: student needs to study math and english: she can spend all the time studying math or vice versa, or she can allocate the time between both. Ex: clean environment and high level of income: laws that require firms to reduce pollution raise the cost of producing goods and services. Because of these higher costs, firms end up earning smaller profits, paying lower wages, charging higher prices, or some combination of these three. Thus, while pollution regulations yield the benefit of a cleaner environment and the improved health that comes with it, the regulations come at the cost of reducing the incomes of the regulated firms" owners, workers, and customers. Efficiency society is getting the maximum benefits from its scarce resources. When the gov. tries to cut the economic pie into more equal slices, the pie gets smaller: the cost of something is what you give up to get it.
