Untitled Flashcards Set

WEEK 1 

Principles of Microeconomics

Is the study of small economic units, consumers, firms, and focuses on price as an allocative mechanism 

Macroeconomics - study the large economy as a whole or the aggregate/ overall performance

INCENTIVES 

How do you stop sea captains from killing their passengers? 

• ⅓ of the passengers either died or were beaten and when they arrived in Australia they died. 

• Paid by each passenger who gets onto the boat ( if less return they won't get paid) 

• The immediate result is more passengers lived 

• They would get bonus 

Loyalty Program 

Economics 

• The study of how people and firms make choices to use scarce resources to satisfy their unlimited wants. 

Free market economy 

• Decisions of households and firms interact in the market to allocate resources. 

• How the household and the firms interact with each other 

• North Korea is not a Free Market Economy 

Mixed Economy 

•  a mixed economic system is one that combines aspects of both capitalism and socialism. A mixed economic system accepts private property and permits economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims.

Resources 

• capital , Labor, Natural, Resources, Entrepreneurial Ability, Time 

Scarcity 

- unlimited wants exceed, limited resources (FORCES US TO CHOSE) 

Because of scarcity we need to make a choice. 

Four core principles provide a systematic framework for analyzing decisions 

1. Cost benefit principles 

2. Opportunity cost principles 

3. Marginal principle 

4. Interdependence principle 

Interactive Activity 

1- choice from 2 options 

• $50 to invest

• facebook , Apple, Starbucks, Walmart 

• opportunities cost 

Opportunity Cost principle 

• The true cost of something is the next best alternative you must give up to get it 

Example 

Should you have an unpaid internship next summer 

The cost is - you are not getting paid but it puts experience on your resume. You can get another job that pays you to get income. 

In economics opportunity cost will always be in a count 

Quantifying Costs and Benefits: 

An example 

The coffee costs $3 

• You should buy the coffee if the benefit is at least as large as the cost of $3 

2- Choice from 4 options 

Walmart - consumer society 

Apple 

Facebook t

Starbucks 

ECONOMICS MODELS

Efficient possibilities and opportunity Cost 

All Possible combinations representing an efficient use of resources - productively efficient 

A Sunk Cost - is a cost that cannot be reversed 

You should ignore some costs 

• It exists whether you make your choice or not, so it is not an opportunity cost ( it doesn't go away when say “or what”) 

• When weighing costs and benefits, a good decision maker ignores sunk costs  

1.3 The Marginal Principle 

• Decisions about quantities are best made incrementally 

• You should break down “how many” decisions into a series of smaller, or marginal, decisions 

• Then you weigh the marginal benefits and marginal costs to make good decisions 

Marginal benefits - the extra benefits from one unit ( of goods purchased, hours studied, etc) 

Marginal Cost - the extra cost from one extra unit 

Principles of how people make decisions 

Rational People think at the margin 

A rational decisionmaker takes action if and only if the marginal benefit of the action exceeds the marginal cost