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Principles Of Economics Summary, ISBN: 9780077132736 ECT - Economics and Tourism (CBTO1ECT)
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ECT- Book summaryChapter 1:
Thinking like an economist:
- Common sense
- Marginal costs
- Marginal benefits
Economics: studying choice in an world of scarcity
- Scarcity: is a fundamental fact of life, there is never enough time
money and energy to do all, so we must choose.
o Boundless needs – limited resources
- Economics: the study of how people make choices under conditions
of scarcity and of the results of those choices for society.
- Scarcity principle: the simple fact of scarcity makes trades-offs
necessary. These trade-offs are widespread and important in one of
the core principles of economics.
o No-Free-lunch principle: even lunches that are given to you
are not for free- somebody, somehow always has to pay for
them. (Other name for scarcity principle)
- Cost-benefit analysis: economists resolve trade-offs wit this. The
idea of trade- off is the fact that choice involves compromise
between competing interests. Based on
- Cost benefit Principle: simple principle that an action should be
taken if, and only if, the benefits exceed the costs.
Take action when additional benefits are higher than
additional costs.
With one ore ice cream can make you a little bit happier,
but there is also an additional higher chance of getting a
stomach ache.
o Measure: we need to measure the relevant costs and benefits.
o SEE PAGE 5 EXAMPLE
o Economics best: taking into account costs and benefits
o Psychologists best: taking into account learning benefits of
different class sizes.
Applying the cost benefit principle
- Rational: well defined goals and try to fulfil them a the best they
can.
o Cost benefit principle is fundamental tool
o Only difficulty is reasonable measures
- Economic surplus: the economic surplus from taking any action =
the benefit of taking that action – its costs.
o You want to create the largest possible economic surplus.
o Increase in economic surplus = benefit- cost
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