ECON 1 Study Guide - Midterm Guide: Deadweight Loss, Dwls, Tax Incidence
26 Oct 2017
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Guns (national defense) vs butter (consumer goods) Efficiency (maximum benefits) vs. equality (benefits distributed uniformly) Principle 2: the cost is what one gives up to get it. Opportunity cost: what is given up to get the product/service. Principle 3: rational people think at the margin. Rational people: systematically and purposefully do the best they can to achieve their objectives, given the available opportunities. Marginal change: a small incremental adjustment to an existing plan of action. Rational people only takes action if and only if the marginal benefit of the action is greater than the marginal cost. Incentive: something that induces a person to act the prospect of reward and punishment. Principle 5: trade can make everyone better off. People can specialize in producing one good or service and exchange it for other goods or services. Countries benefit from trade and specialization by: Getting better price abroad for products they"ve produced. Buying good at a cheaper price from abroad.
