ECO2030 1nd Edition Lecture 2Outline of Last Lecture I. Overview of Syllabus and course requirementsOutline of Current Lecture II. What is EconomicsIII. 10 Principles of EconomicsCurrent 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. Principlea. People face trade offs whenever a decision is made2. Principlea. The cost of something is what you give up to get it i. Make decisions - compare cost with benefits of alternativesii. Called the Opportunity Cost - whatever must be given up to obtain one item. 3. Principlea. Rational people think at the Margini. 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 nomore seats the loss = $10,000. If they lower the price they will alsolose money, however, they can reduce the loss!! That is thinking atthe Margin.iii. Take action only if Marginal Benefits > Marginal Costs4. Principlea. People respond to incentivesi. An incentive is something that induces a person to actii. Higher prices - buyers consume lessiii. Sellers produce moreiv. Public policy - changes costs or benefits → change peoples behavior1. Example of Incentives: Between 2005 and 2008, gas went from $2- $4, this provided incentives to build more efficient airplanes, cars, ect. 5. Principlea. Trade can Make everyone Better Offi. 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
View Full Document
Unlocking...