ECO2030 1nd Edition Lecture 2 Outline of Last Lecture I Overview of Syllabus and course requirements Outline of Current Lecture II What is Economics III 10 Principles of Economics Current Lecture Economics Oikonomos in Greek one who manages a household Resources are scarce Scarcity limited nature of societies resources Economics studies how societies manage scarce resources how people interact and make decisions 10 Principles of Economics 1 Principle a People face trade offs whenever a decision is made 2 Principle a The cost of something is what you give up to get it i Make decisions compare cost with benefits of alternatives ii Called the Opportunity Cost whatever must be given up to obtain one item 3 Principle a Rational people think at the Margin i People are rational systematically and purposefully do the best they can to achieve their objectives ii Marginal Changes make small incremental changes adjustments to a plan of action 1 Example of thinking at the margin A flight from Charlotte LA has 200 seats 100 20 000 The cost to operate the flight 20 000 They have sold 100 seats 100 10 000 They will lose money if they do not sell all the seats however if they sell no more seats the loss 10 000 If they lower the price they will also lose money however they can reduce the loss That is thinking at the Margin Take action only if Marginal Benefits Marginal Costs iii 4 Principle a People respond to incentives i An incentive is something that induces a person to act ii Higher prices buyers consume less iii Sellers produce more iv Public policy changes costs or benefits change peoples behavior 1 Example of Incentives Between 2005 and 2008 gas went from 2 4 this provided incentives to build more efficient airplanes cars ect 5 Principle a Trade can Make everyone Better Off i Trade allows specialization Makes some people better at different tasks than others more efficiency ii Trade enjoy a greater variety of goods and services at lower costs
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