What Is Econ?

Macroeconomics Notes

Chapter 1

* Scarcity – Society has limited resources

* Therefore cannot produce all the goods and services that everyone wants

* Economics – the study of how society manages their scarce resources

Ten Principles of Economics

1. People Face Trade-Offs

* People have to choose between doing one thing over another

* Investing time and money into one thing or another

i. Everything has an opposite that you aren’t investing in when you invest in something

* Governments often have to decide between “guns and butter’

ii. National defense or consumer goods

* Government must also decide between Efficiency and Equality

iii. Efficiency- means that society is getting the max benefits from the scarce resources

iv. Equality- distribution on benefits is equal among all people

* Increasing on Decreases the other

2. The Cost of Something is what you give up to get it

* Decisions require comparing the costs and benefits of alternate options

v. When deciding costs, don’t factor in the things that you would need even if you did not choose that path

* Ex) Room and Board when going to college

* Opportunity Cost – what you give up to get that item

3. Rational People Think at the Margin

* Rational People – systematically and purposefully do their best to achieve their objectives, given the available opportunity

* Marginal Change – small incremental adjustments to an existing plan of actions

vi. People of compare marginal benefits and marginal costs to help make decisions

* Marginal Cost – the amount your “bill” increases to do something

* Marginal Benefit – based on the amount of the object that the person has

* Why diamonds are more expensive that water

* See Pg. 6

* Rational people take action only if the marginal benefit is greater...