ECON-221 Chapter Notes - Chapter 1: Economic Surplus, Marginal Utility, Marginal Cost

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Microeconomics notes: economics the study of how people make choices under conditions of scarcity and of the results of those choices. Involves the compromise between competing interests and the resolution of these trade- offs. People compare costs and benefits for alternative actions in pursuing their goals. Aim is to maximize economic surplus: incentive principle a person is more likely to undertake action if its benefits rises, and less likely to undertake it if the costs rises. Positive economics analysis that explain what happens and why, but does not state what should have. Normative economics analysis that states what should happen. Important concepts (pitfalls that affects rationalism of opportunity costs: measure costs and benefits as absolute dollar amounts rather than as proportions. Rational decision based on the greater benefit: account for all opportunity costs. Recognize what taking a given action prevents an individual from doing: ignore sunk costs.

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