1. Summary Notes Economics 230 Part I

2. Chapter I Economics is concerned with the implications of relative scarcity A consequence is that there is no free lunch Rational decision makers compare benefits and costs of choices. How? Benefit-Cost Principle: Take an action if the added benefits exceed the added costs

3. Applying The Benefit-Cost Principle Reservation prices Economic surplus Opportunity cost Using graphics Checking on rationality

4. Pitfalls in Making Decisions : #1 Ignoring Opportunity Costs #2 Failing to Ignore Sunk Costs #3 Failing to Understand the Average-Marginal Distinction

5. Chapter II Comparative advantage is an application of opportunity cost Specialization and division of labor can increase the total output of the community Principle of Increasing Opportunity Cost Comparative advantage determines the pattern of trade Production Possibilities Frontier Model Benefits of Trade

6. Chapter III Specialization and division of labor requires that people trade with each other. Model of single market describes the process. Demand reflects intentions of buyers Supply reflects intentions of sellers Equilibrium price is one where buyers and sellers intentions are in balance Study effects of shifts in supply and demand

7. Chapter 7 The efficiency of a perfectly competitive market system Maximizing the economic surplus Cost of price ceilings and price floors The effect of taxes and subsidies on a competitive economy

8. Chapter 9 Using comparative advantage to understand trade patterns between regions and countries Analyzing international trade in a good using supply and demand Impact of trade restrictions