Introduction to Economics: Lesson 1 - Basic Principles of Economics - Prof. Pizarro, Apuntes de Administración de Empresas

¡Descarga Introduction to Economics: Lesson 1 - Basic Principles of Economics - Prof. Pizarro y más Apuntes en PDF de Administración de Empresas solo en Docsity! Marta Más Comes. INTRODUCTORY ECONOMICS: LESSON 1: BASIC PRINCIPLES OF ECONOMICS. 1.1 ECONOMICS OF SCARCITY AND THE ECONOMIC APPROACH: ECONOMY: One who manages a household (Greek- Oikonomos). HOUSEHOLD: Family; faces many questions in terms and income. • How much is the salary of each member of each family member? • What goods and how many of them can be buyed? • How much does it save? ECONOMY: Faces similar decisions as a household: • Who will work? • What goods and how many of them should be produced? • What resources should be used in production? ECONOMY: Study of how society manages its scarce resources. 1.2 BASIC PRINCIPLES OF ECONOMICS. BASIC PRINCIPLES OF ECONOMICS: There are some basic relations that gives us an overview of what economics is all about. 3. categories: 1.- HOW PEOPLE MAKE DECISIONS: #PRINCIPLE 1: People face trade- offs. • In the economy, there is nothing free, to get one thing, we usually have to give up another thing. EXAMPLES: • F 02 0TV vs CINEMA. • FOOD vs CLOTHING. • In terms of the society, there is an important trade-off between efficiency and equity. • 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. # PRINCIPLE 2: THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT. • To make good decisions, we should compare the costs and benefits of each alternative. • In each choice, we should be aware of the “OPPORTUNITY COST”: It is the most valuable alternative we give up in order to get another. #PRINCIPLE 3: RATIONAL PEOPLE THINK AT THE MARGIN. • People are rational because they always choose the option that maximizes their satisfaction or needs. • People think at the margin when they have to decide to do little bit more of an activity or do bit less, comparing the costs (marginal cost) and benefits (marginal benefit) of both options. • People choose the option which the marginal benefit exceeds the marginal cost. #PRINCIPLE 4: PEOPLE RESPOND TO INCENTIVES. • An INCENTIVE is something that induces a person to act or to change his behavior. EXAMPLE: • The increase in the price of a good. • The decrease in our salary. • The economic policy measures. • New laws. • … • People can change their behavior when the marginal costs and marginal benefits change due to incentives. #PRINCIPLE 5: TRADE CAN MAKE EVERYONE BETTER OFF. • The action of buying and selling goods and services (trade) improves our standard of living. • Countries also from trading with another one because they can specialize in goods in what they do and enjoy a greater range of goods and services. #PRINCIPLES 6: MARKETS ARE USUALLY A GOOD WAY TO ORGANIZE ECONOMIC ACTIVITY. • A MARKET ECONOMY is an economy that allocates resources through the decisions of millions of FIRMS and HOUSEHOLDS: • FIRMS: Decide whom to hire and what to produce. • HOUSEHOLD: Decide who to work for and what to buy. • Price changes allow to reach the best for buyers and sellers, getting the equilibrium.