Lecture Notes Microeconomics 8 30 12 Economics allocation of scarce resources Institutions o Scarcity choice cost o Cost benefit principle o Marginal Analysis o Production possibilities Microeconomics How households firms make choices and interact in markets Scarcity Idea that there is never enough time energy to do everything have everything we want Scarce Resources o Labor o Land o Capital manufactured resources man made objects that help with production i e highways o Technology o Time Scarcity choice Scarcity forces us to choose with cost benefit analysis Example something costs 35 in Oakland 25 in Waterfront 10 benefit by going to Waterfront but the cost is the time trouble it takes to get to the Waterfront If the cost is less than the benefit the person won t do whatever it is Analyzing the costs and the benefits together Scarcity choice cost Cost what you give up to get Choosing one alternative over another has cost Opportunity cost highest valued alternative that has to be given up to attan something or satisfy a want Models Theory Simplified descriptions of reality used to understand real life situations Cost benefit used as an abstract model of how an idealized rational individual someone who uses all information to achieve their goals to get the maximum benefit would chose among competing alternatives Cost benefit subtleties Absolutes not proportions that matter Optimal BEST decisions made at the margin o How much Ignore sunk costs don t look back o Spent money already don t focus on that you can t get the money back look at the future Production Possibilities Assumptions 1 Country makes 2 goods 2 Country has fixed resources technology 3 Efficient production refer to table in notes Summary Economics social science studying human behavior the way individuals and societies choose among the alternative uses of scarce resources to satisfy wants and needs Limited resources force people to face tradeoffs Choosing one alternative over another generates a cost opportunity cost Optimal best decisions made at the margin 2 simple models Cost benefit and PPF
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