Chapter 1 - Alexander Gainer PDF

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Alexander Gainer...

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Chapter 1 ECON 101

The Bg Ideas of Economics

https://s3-us-west-2.amazonaws.com/secure.notionstatic.com/2d7e8126-d59d-4e81-a9a9 5af73d8c383b/Chapter_1.pptx Define scarce resources A resource is anything that can be used to make something else. A resource is scarce when the quantity available is not large enough to satisfy all its uses. Define Scarcity the problem of unlimited human wants and needs in a world with limited resources Define Economics examining how society allocates its scarce resources ex. how much should a business produce or how many employees should they hire? how much should people save or spend? or work?

how society decides how to allocate its scarce resources? An essential step to thinking like an economist is recognizing that an economy is just a group of people interacting with each other. What are the four ideas how people make decisions? trade-offs making decisions requires trading off one thing for another true cost - opportunity cost is something you give up to get that item not only includes the money we give up but everything that we give up when we make a choice thinking on the margin "either-or" making the "how much" choice Thinking on the margin means you compare the costs and benefits of doing a little more of an activity versus doing a little less. In other words, making small incremental changes to a plan and then comparing the costs and benefits of the change In this context, costs are called marginal costs and benefits are called marginal benefits responding to incentives An incentive is something that motivates a person to perform an action

One famous definition of economics describes it as “the study of incentives: how people get what they want, or need, especially when other people want or need the same thing.” Prices are an essential incentive and are vital to understanding how markets work.

Understanding incentives is fundamental to how economists make predictions about individual behavior. What are the three ideas that look at how people interact with each other? trade=make everyone better off How do the decisions I make interact with the decisions you make? what is specialization Gains from trade arise from the division of tasks Trade allows people to specialize in what they do best And by trading with others, people can buy a larger variety of goods and services at lower costs. Countries, as well as individuals, benefit when they trade with each other. markets, a way to organize economic activity No department of the Canadian government is in charge of deciding what goods should be produced, how much to produce, and who should produce and consume these goods - a market economy takes care of these What is a market economy one where resources are allocated by the decentralized decisions of many businesses and people as they interact in markets for goods. simply a group of buyers and sellers What does "organizing economic activity" mean determining what to produce, how much to produce, who produces it, and who gets to consume it. But the basic idea is that when people and businesses do what is best for themselves, they often end up doing what is best for society. aka "invisable hand" - adam smith

markets often create incentives that align self-interest with social interest. government help when markets don't work When markets fail, the incentives are distorted, and self-interest no longer aligns with social interests when markets do not correctly align self-interest with social interest, governments can sometimes improve the result by changing incentives with laws, regulations, taxes, and subsidies. What are some important roles that government has when intervening 3 maintain good institutions that enforce their laws and regulations The most important rule for an economy is property rights which allow people to own and decide how to use resources, such as land or a building to help promote equity in society (invisible hand might not work for everyone) Note that we say governments can improve outcomes and not governments always improve outcomes when markets fail...