Ch1 - Slides

Let's dive into economics today. We'll explore core questions, understand how people make decisions, and analyze human interaction within economic frameworks.Economics is all about scarcity. It's the study of how society manages its limited resources, from what people buy to how firms produce and allocate resources.Principle #1: People face tradeoffs. Every decision involves a compromise. For instance, studying less for an exam gives you more social time.Society faces the tradeoff between efficiency and equality. Efficiency means maximizing resources, while equality ensures fair distribution. Redistributing wealth might reduce work incentives.Principle #2: The cost of something is what you give up to get it. This is the opportunity cost, a vital concept for decision-making.Consider going to university. The opportunity cost isn't just tuition; it's also the wages you forgo. For a movie, it's the value of your time spent in the theater.Principle #3: Rational people think at the margin. We systematically evaluate costs and benefits of small, incremental adjustments to achieve our objectives.For example, a student considers extra income vs. fees for another year of university. A manager compares labor costs to extra revenue from increased output.Principle #4: People respond to incentives. Incentives are inducements to act, whether rewards or punishments. Rational individuals adjust their behavior based on these.Let's apply these principles to a car sale scenario. You've spent $1000 on repairs, but the transmission dies. Should you repair it for $600?