Microeconomics 22060 Dr Rohlin Jan 15 th Chapter 1 Economics the study of how society manages its scarce resources Scarcity the limited nature of society s resources Principles of Economics 1 People face tradeoffs 1 Efficiency vs Equality 2 Efficiency 3 Equality when society gets the most from its resources when prosperity is distributed uniformly among everyone 2 The cost of something is what you give up to get it 1 Opportunity Cost OC Whatever must be given up to obtain Ex Movie night 20 tickets 10 food 30 cost explicit Works 10 hour movie is 2 hours long 20 wage he gave up implicit cost 50 book OC 20 Dr Rohlin OC Implicit cost old job interest on savings Explicit cost like writing a check gas to get to the movie 3 Rational people think on the margin 1 Airline Question if it costs an airline 200 000 to make the flight it 2 can seat 400 people What would the price be for profit to equal 0 break even 200 000 400 500 If there are 6 seats left 5 minutes before the flight you offer 200 to fly What should the airline do Take the 200 deal because they would come closer to their break even 3 marginal benefit vs marginal cost Marginal The benefit cost for the next Q good Sunk cost Money that is gone already cost that do not change based on the decision 4 People respond to incentives 1 Incentive something that induces a person to act 5 Trade can make everyone better off to act Chapter 3 6 Markets are usually a good way to organize economic activity How to determine prices and quantities 1 Market buyers and sellers determine price and quantities 2 Command one person or the government decides price and quantities 3 Traditional letting history affect determine prices and quantities Gender gap minus 20 Black white gap minus 10 7 Governments can sometimes improve market outcome 1 Creating laws and enforcing them Important role of government enforcing property rights
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