23115 Study Guide - Midterm Guide: Ceteris Paribus, Marginal Utility, Marginal Cost
Document Summary
Scarcity: available resources can"t produce all goods/services ppl desire. Scarcity forces people to make choices (we face trade offs) Macro: economy as a whole (inflation, unemployment, economic growth: people face trade offs. Due to scarce resources, decisions require trading off one goal for another. Trade off between equity and efficiency (exists when there is scarcity: the cost of something is what you give up to get it. Opportunity cost is the value of that you give up to obtain it (true cost) Monetary value = implicit (e. g. time: rational people think at the margin. Comparing costs and benefits at the margin (associated to small changes) Incremental change = marginal change: people respond to incentives. Can be a reward or a punishment (our behaviour is affected as a result) Rational people respond to incentives as they consider costs/benefits. E. g. penalties (alter the costs/benefits of a decision: ppf production possibilities frontier, economist as a policy advisor.
