Econ Chapter 1 Essay

748 Words3 Pages
CHAPTER 1 THINKING LIKE AN ECONOMIST • Scarcity means that we have to make choices, more of one good means choosing less of another. • Economics is the study of how people make choices under conditions of scarcity and of the results of those choices for society. • The scarcity problem: although we have boundless needs and wants the resources available to us, including time, are limited. Scarcity means that we have to make choices—having more of one good thing usually means having less of another. • The cost-benefit principle: an individual (or a firm or a society) will be better off taking an action if, and only if, the extra benefits from taking the action are greater than the extra costs. • Economic definition of “best” takes into account both the benefits and the costs of different class sizes as perceived by you (or your parents). • Rational person is someone with well-defined goals who tries to fulfill those goals as best he or she can • The cost-benefit principle is a fundamental tool for the study of how rational people make choices. • Economic surplus is the benefit of taking any action minus its cost. • Opportunity cost is the value of the next-best alternative that must be foregone in order to undertake the activity • Opportunity costs can be either explicit or implicit. An explicit opportunity cost requires an outlay or payment. By sacrificing an income, you are incurring an implicit opportunity. • The total opportunity cost of any action is the sum of explicit and implicit opportunity costs. • Positive economics: economic analysis that offers cause-and-effect explanations of economic relationships; the propositions, or hypothesis, that emerge from positive economics can, in principle, be confirmed or refuted by data; in principle, data can also be used to measure the magnitude of effects predicted by positive economics. • Normative

More about Econ Chapter 1 Essay

Open Document