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WEEK 1: Five Foundations of Economics - Coggle Diagram
WEEK 1: Five Foundations of Economics
Scarcity
Economics is the study of how people allocate
limited resources
to satisfy their
unlimited wants.
created from the imbalance of wants and needs
Scarcity exists when the
marginal cost
of obtaining something is greater than
zero
.
Scarcity is NOT a Shortage
Shortage = Market Condition =
demand rises and prices fall
Incentive Matters
People respond to positive & negative incentives.
An unintended consequence/result usually derived from a negative incentive.
Life is about Trade-Offs
Scarcity implies
choice
Every decision incurs a
cost
(what you give up)
To have one thing, you have to give up another thing
Opportunity Costs
The
highest-valued alternative
that must be
sacrificed
to get something else.
Scarcity → Choice → Opportunity Cost
Value of the trade-off is represented by the opportunity cost.
having a lower opportunity cost is better
Marginal Thinking
Considering the
trade-offs
and
opportunity costs
associated with doing a little more or a little less.
Reasoning with marginal benefit vs marginal cost
(e.g. cost is time).
Trade creates Value
Markets
Bring buyers and sellers together to exchange goods and services
Trade
The
voluntary exchange
of goods and services between two or more parties
Trade depends on
specialisation
&
comparative advantage