Scarcity (limited resources & unlimited wants)
The Economic Problem
Study of people in the ordinary business of life
Economics
Study of individual decisions
Micro
Implications of decisions across the economy
Macro
Consider cost and benefits fo a choice (college: cost, tuition & fees, books, time)
Cost-Benefit Prinicples
Consider the alternatives (college: cost-lost income, benefits - higher income later)
Opportunity Cost Principles
Think in terms of small changes (little more or less)
Marginal Principle
Understand how different decisions depend on each other
Interdependence Principles
4 Core Principles
Cost-Benefit Principle, Opportunity Cost Principle, Marginal Principles, Interdependence Principles
Evaluate all cost and benefits fo a choice, make choices if benefits > cost
Issue: difficult to measure
Weigh available info & make decisions believed to be their in best interest
Cost - Benefit Principle
Benefits - Cost =
Economic Surplus
True cost of something is the next best alternative you give up
Opportunity Cost Principles
Already been incurred & cannot be avoided (not be considered in decision making)
Sunk Cost
Decisions about quantities are best made thinking about small changes
Marginal Principle
Additional benefits from one more unit
Marginal Benefits (MB)
Additional cost from one more unit
Marginal Cost (MC)
Rational Rule �> keep doing something until... (Optional decisions occur where)
MB = MC
Best Choice depends on your choices
Choices of others, changes in market & future expectations
Interdependence Principle