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I. UNIT I. A. The Nature and Methods of Economics. and the Economizing Problem. 1. Scarcity. 2. Opportunity Cost. 3. The inevitability and. consequences of resource. scarcity. 4. Three of the economic goals. amplified. a. Efficiency. 1. Allocative efficiency.

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I. UNIT I

A. The Nature and Methods of Economics

and the Economizing Problem

1. Scarcity

2. Opportunity Cost

3. The inevitability and

consequences of resource

scarcity

4. Three of the economic goals

amplified

a. Efficiency

1. Allocative efficiency

2. Technical efficiency

b. Equitable distribution of income

5. Creating graphs

6. Interpreting graphs

7. Production possibilities curves...

interpretation

8. The "isms"

9. The economic or cost-benefit

perspective


All decisions involve acts----a decision is

always about whether to commit a certain act.


All decisions involve acts----a decision is

always about whether to commit a certain act.

We're always looking ahead-----we don't make

decisions about the past.


All decisions involve acts----a decision is

always about whether to commit a certain act.

We're always looking ahead-----we don't make

decisions about the past.

We're always expecting extra benefits from

committing a specific act.

As far as decision is concerned, the extra

benefits are the only benefits that matter--

benefits from committing same act in past

are irrelevant except that they may inform

us about what to expect.



We're always expecting extra costs that

we will incur if we commit an act.

As far as decision is concerned, the extra

costs are the only costs that matter--

costs incurred in past are irrelevant except

that they may inform us about what to expect.



If extra benefits exceed extra costs:

we commit the act

If extra costs exceed extra benefits:

we don't commit the act


Extra Benefits are called MARGINAL

BENEFITS...

The extra benefits we will get if we commit

a specific act.


Extra Benefits are called MARGINAL

BENEFITS...

The extra benefits we will get if we commit

a specific act.

Extra Costs are called MARGINAL COSTS.....

The extra costs we will incur if we commit

a specific act.


Extra Benefits are called MARGINAL

BENEFITS...

The extra benefits we will get if we commit

a specific act.

Extra Costs are called MARGINAL COSTS.....

The extra costs we will incur if we commit

a specific act.

If MB exceeds MC, we commit the act.

If MC exceeds MB, we don't commit the act.


Simply means doing what is preferred.

Suppose we wish to do A and B in a given

time frame but can only do one.


Simply means doing what is preferred.

Suppose we wish to do A and B in a given

time frame but can only do one.

MC of A = value placed on B

MB of A = value placed on A


Simply means doing what is preferred.

Suppose we wish to do A and B in a given

time frame but can only do one.

MC of A = value placed on B

MB of A = value placed on A

If MB of A is greater than MC of A, it

means we place more value on A than B...

A is the option we prefer.


Sunk Cost-----The value we place on

opportunities which we once had but

we once had

have already sacrificed.

Marginal cost--the value we place

on opportunities

we still have

but when we act.

will sacrifice


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