ECO2013 Lecture 2 Outline of Last LectureI. Is life getting better or worse?II. Basic terms and definitionsOutline of Current Lecture I. Eight guideposts to economic thinkingII. Positive and normative economicsIII. Four pitfalls to avoid in economic thinkingCurrent 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
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