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microeconomics-hd-quality-exam-summary-notes-ecf1100.

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: Introduction to Economics Definitions • Economics: Study of the choices people & societies make to attain their unlimited wants, given their scarce resources (i.e. to deal with problem of scarc ... ity) • Scarcity: Where unlimited wants exceed the limited resources available to fulfil those wants. • Opportunity Cost: Is the value of ‘next best’ alternative that must be forgone to engage in the production or consumption of a good or service. • Production Possibility Frontier: A curve showing the maximum attainable combinations of two productions that may be produced with available resources. Lessons from Microeconomics • People face trade-offs: Making decisions requires trading off one goal vs another • Opportunity cost: The cost of forgoing the next best alternative??? • Rational people think at the margin: Decision are made comparing costs & benefits at the margin o Optimal decision: MB = MC • People respond to incentives: Marginal changes to costs & benefits lead to decision to choose one alternative over another • Trade can make everyone better off: Trade allows people to specialise in what they do best & this lies at the heart of gains from trade • Markets are usually a good way to organise economic activity: Adam Smith made the observation that households & firms interact in markets as if guided by an ‘invisible hand’ [Show More]

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