Chapter 1 - Four Core Principles (Micro)

Scarcity (limited resources & unlimited wants)

The Economic Problem

Study of people in the ordinary business of life


Study of individual decisions


Implications of decisions across the economy


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)


Best Choice depends on your choices
Choices of others, changes in market & future expectations

Interdependence Principle