ECO2013 Lecture 2 Outline of Last Lecture I Is life getting better or worse II Basic terms and definitions Outline of Current Lecture I Eight guideposts to economic thinking II Positive and normative economics III Four pitfalls to avoid in economic thinking Current Lecture Chapter 1 Economic Approach continued Resources Resource An input used to produce an economic good 1 Human resources human capital 2 Physical resources physical capital 3 Natural resources Capital Human made resources used to produce other goods and services Example of Human Capital Albert Einstein s intelligence The Economic Way of Thinking 8 Guideposts to Economic Thinking 1 Resources are scarce so decision makers must make trade offs There s no such thing as a free lunch Opportunity Cost The highest valued alternative that must be sacrificed when choosing an option Example An hour of your time 2 Individuals are rational they try to get the most from their limited resources greatest benefit and least possible cost What is rational for one person may not be rational for another 3 Incentives matter choice is influenced in a predictable way by changing incentives Example prices 4 Individuals make decisions at the margin Marginal Describes the effect of a change in the current situation
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