tailieunhanh - Lecture Principles of microeconomics - Chapter 1: Thinking like an economist

This chapter introduces you to two of the most basic economic principles – the cost-benefit principle and the scarcity principle. You will learn why scarcity forces us to make choices, and how to evaluate those choices using costs and benefits. | Thinking Like an Economist Slide 1 - What is Chapter 1 about? Slide 1 - I. Economics: Studying Choice in a World of Scarcity Slide 1 - If you could always get everything you wanted, immediately and for free Then you wouldn’t have to choose Only say “More please” But the real world isn’t like that Scarcity of time, $, other resources makes CHOICE necessary Slide 1 - Costs Matter Economists count costs (and benefits) Someone must pay the costs Someone gets the benefits Scarcity is a general phenomenon Never enough time, money, energy . Economics - the study of how people make choices under conditions of scarcity and of the results of those choices for society Slide 1 - Scarcity Problem Implications Tradeoffs are widespread Having more of one good usually means having less of another AKA the “No free lunch Principle” Slide 1 - The Cost-Benefit Principle Take an action if, and only if, the extra benefits from taking the action will be at least as great as the . | Thinking Like an Economist Slide 1 - What is Chapter 1 about? Slide 1 - I. Economics: Studying Choice in a World of Scarcity Slide 1 - If you could always get everything you wanted, immediately and for free Then you wouldn’t have to choose Only say “More please” But the real world isn’t like that Scarcity of time, $, other resources makes CHOICE necessary Slide 1 - Costs Matter Economists count costs (and benefits) Someone must pay the costs Someone gets the benefits Scarcity is a general phenomenon Never enough time, money, energy . Economics - the study of how people make choices under conditions of scarcity and of the results of those choices for society Slide 1 - Scarcity Problem Implications Tradeoffs are widespread Having more of one good usually means having less of another AKA the “No free lunch Principle” Slide 1 - The Cost-Benefit Principle Take an action if, and only if, the extra benefits from taking the action will be at least as great as the extra costs Estimating costs and benefits Often difficult – many potential calculations Necessarily refers to future outcomes Hence - have to use assumptions WHICH ASSUMPTIONS ? – a judgment call Slide 1 - II. Applying the Cost/Benefit Principle Slide 1 - Rationality Economists usually assume that people are rational—in the sense that they know their own goals and try to fulfill these goals as best they can Calculating the implications of rational behavior provides a benchmark for forecasting Slide 1 - Benefits and Costs – Measured comparably ($$) To compare the size of benefits to the size of costs they must be measured in comparable units Dollars are often the most convenient unit Slide 1 - All transactions have two sides – so for any good Reservation Price : The highest price a buyer would be willing to pay for any good or service From buyer’s point of view - equal to the benefit received from the good or service Reservation Price : The lowest payment a seller .