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INTRO TO MICRO (How individual choices interact? (Gains from trade (More…
INTRO TO MICRO
How individual choices interact?
Resources should be used as efficiently as
possible to achieve society’s goals
Efficient economy
= take all opportunity to make everyone better and no one worse
Markets move -> equilibrium
equilibrium
= point where no individual
would be better off doing something different
each change = new equilibirum
Markets usually lead to efficiency
When markets don’t achieve efficiency,
government intervention help -> society’s welfare
Market fail = externalities not taking into account
Some goods can not be efficient with markets (freeways)
Gains from trade
More goods and services than if they'll try self-sufficency
Market economy = providing & receiving
Increase out-put due to
specialization
How individuals make choices?
The real cost =
opportunity cost
"How much?" = decision at the margin
Making trade-off at the margin = comparing costs&benefices of a bit more VS bit less
Study of it =
marginal analysis
Resources are scarce
Quantity limited to satisfy (petroleum, lumber...)
Resources = used to produce (land, labor, capital...)
People take advantage to make themselves better off
Incentive = anything that offers rewards to people who
change their behavior