Econ 1/27 Notes

Economics - Efficient allocation of scarce resources

• Efficient - (Most Bang for Your Buck)

• Allocation - (Sleep, Read, Study, Socialize)

• Scarce - (limited amount)

• Resources - (land, labor, capital, entrepreneurship)

• We only do what makes us happy, assuming we can afford it.

  • This is how being rational starts. You weigh the benefits and the costs

• Production Possibilites Curve

  • A,B,C are obtainable.

    • “C” wastes resources

Pitfalls of Rationality

• 1. opportunity cost - What you give u to obtain something else

  • Total Cost - explicit cost

  2. Sunk Cost - anything that once it’s occurred it cannot be recouped

  3. Relative vs. Absolute

     1. $90<$100 —> $100 is better in absolute terms, do not try to rationalize based on % gained.