1000 Lecture Notes - Lecture 1: Opportunity Cost
Document Summary
5-21: even simplest decisions are shaped by decisions of thousands of other people. Principles that underlie individual choice: core of economics: resources are scarce = choices must be made, true cost of something is its opportunity cost what you must give up in order to get it. Trade-off: a comparison of costs & benefits: people usually respond to incentives, exploiting opportunities to make themselves better off. Economists are skeptical of attempt to change people"s behaviour without an incentive. Interaction: how economies work: there are gains from trade (specializing, markets move toward equilibrium. An econ situation is equilibrium when no one is better off doing something different: resources should be used efficiently to achieve society"s goals. An econ"s resources are used efficiently when they are used to fully exploit all opportunities making everyone better off: markets usually lead to efficiency.
