Chapter 1: Introduction :)))

Question 1

7 lessons from microeconomics

Answer 1

• People face trade-offs
• The cost of something is what you give up for it
• Rational people think at a margin
• People respond to incentives
• Trade can make everyone better off
• Markets are usually a good way to organise economic activity
• Governments can sometimes improve market outcomes

Question 2

People Face Trade Offs

Answer 2

• To get 1 thing, we must give up another
• > efficiency vs equity
• -> society makes the most of scarce resources
• -> or distribute these resources evenly

Question 3

The cost of something is what you give up for it

Answer 3

• > Opportunity cost
• -> The value of the 2nd good forgone,
• -> Refers to the good/service consumers/producers giving up the 2nd most valued good for what they desired most at the time.

Question 4

Rational people think at a margin

Answer 4

-> consumers / firms use informational to weigh up pros and cons to make best decision w/ highest net benefit,

• > Marginal changes
• -> small changes made to a plan

-> people make decisions based on costs/benefits at a margin

Question 5

People Respond to incentives

Answer 5

• > incentive
• -> induces someone to act
• > respond to incentives due to making decisions by comparing costs / benefits
• > eg. baby birth free money 1 july

Question 6

Trade can make everyone better off

Answer 6

-> competition results in gains from trading