Chapter 1+2

• Resources are used to produce goods and services, consumed by people.

  But there is a tension between:

  • People's desire for goods → unlimited
  • The available resources → limited
• Scarcity


  Society will never have enough resources to produce the goods and services that will satisfy the needs of all its citizens.
• Efficiency


  Society gets the most that it can from its scarce resources
• Equity 


  The benefits of those resources are distributed fairly among the members of society.
• To increase equity, society needs to give up on some efficiency.
• Opportunity cost


  The value of the best alternative.

  Ex. Going to class = you lose 2 hours of sleep
• Marginal changes → small incremental adjustments to a plan of action
• Positive Statements

  → Statements that attempt to describe the world as it is.
• Normative Statements

  → Statements about how the world should be.

  (include opinion)
• Calculating Interest

  = P x R x T

  • P = principal amount (beginning balance)
  • R = Interest rate (expressed as a decimal)
  • T = Number of time periods (mostly in years)
• In most societies today, decisions about the management of scarce resources are made by:

  The combined actions of consumers, firms and governments.
• A resource is scarce when:

  Its quantity is lower than what people would like to have.
• After having actively looked for a summer job, you are happy to find out that you have the choice between three job offers: a waiter job that would allow you to earn 3000 euros, a seller job that would allow you to earn 2000 euros and a baby-sitting job that would allow you to earn 1800 euros. You can only choose one job. What is the opportunity cost of choosing the waiter job?

  2000 euros
• You are planning to run a beer stand during a forthcoming fair. You originally estimated that you will generate sales revenue of €2000, and you have already spent €1000 building the beer stand. The beer stand is nearly completed, but now you estimate total sales to be only €800 because the fair clashes with a major music festival in a nearby location. Your decision rule should be to complete the beer stand as long as the cost to complete the stand is less than

  €800
• Your grandmother gives you 10 000 euros for Christmas. You have the choice between spending it on buying a new car or putting it away for a year in a bank account that pays a 5% interest. What is the opportunity cost of spending it now?

  €10500