New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

CH 1 The 5 Foundations of Economics

by: Courtney Dycoco

CH 1 The 5 Foundations of Economics ECON 101

Marketplace > California State University Long Beach > Economcs > ECON 101 > CH 1 The 5 Foundations of Economics
Courtney Dycoco
Long Beach State
GPA 3.3

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Microeconomics Econ 101 Ch 1 Notes
Class Notes
econ 101, Microeconomics, Economics, Lakpour, csulb
25 ?




Popular in Microeconomics

Popular in Economcs

This 3 page Class Notes was uploaded by Courtney Dycoco on Tuesday February 2, 2016. The Class Notes belongs to ECON 101 at California State University Long Beach taught by Lakpour in Spring 2016. Since its upload, it has received 11 views. For similar materials see Microeconomics in Economcs at California State University Long Beach.

Similar to ECON 101 at Long Beach State

Popular in Economcs


Reviews for CH 1 The 5 Foundations of Economics


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 02/02/16
Main goal: provide you with the tools you need to be able to make your own assessments about the economy ­ Discover how the world works ­ Be an informed citizen ­ How to live your life to the fullest  ­ Understand the stock market ­ Make better personal finance decisions ­ Understand social security and health care  BIG QUESTIONS 1. What is economics? ­ Scarcity limited nature of society’s resources  ­ Nothing is infinite in nature ­ not even air or water ­ Economics­ the study of how people allocate their limited resources to satisfy their  nearly unlimited wants; the study of how people make decisions MICROECONOMICS ­ study the small units of economics (individuals) ­ example: individual choosing to take a job in FL or CA, couple  decides to start a family, firm choosing to open another factory, effect of  government intervention on a single market  MACROECONOMICS ­ study the broader situation; bigger picture; interest rate,  unemployment rate, inflation 2. What are the 5 foundations of economics? 1. Incentives matter 2. Life is about trade­offs 3. Opportunity costs 4. Marginal thinking 5. Trade creates value 1. INCENTIVES MATTER  ­ Incentives­ factors that motivate you to act of exert effort ­ people respond to incentives ­ incentives are everywhere and financial gain often plays a  prominent role  ­ Positive Incentives ­ tax refunt, pay raise, employee of the month ­ Negative incentives ­ taxes, fail, fees, fines ­ Direct incentives ­ generally easy to recognize ­ example: Straight A’s & you will get $100 ­ Indirect incentives ­ Maybe the child now has been given a direct incentive to cheat! ­ another indirect incentive: don't get involved in extracurricular  activities! Unintended consequences­ unplanned result (usually negative and unwanted) of an incentive  ­ example: social safety net ­ most agree that we need a safety net for those without employment of low income, however, what if the money from the safety net is higher than he can make at a job? → indirect incentive to stay on welfare rather than work! Incentives and innovations ­ patents and copyrights ­ incentives to innovate ­ why work hard, bear all costs if someone can steal your idea for  profit? ­ Result of a strong patent system?  ­ more innovation, since people are rewarded for new  popular inventions ­ innovation → economic growth, higher standards of living 2. LIFE IS ABOUT TRADE OFFS ­ With scarcity, decisions incur costs ­ examples: go to theater: do I watch action or romantic comedy?  ­ Government face trade­offs too!  ­ spend tax on education on highway? 3. OPPORTUNITY COST  ­ The highest valued alternative that must be given up in order to get something  else  ­ NOT all alternatives, just the next best choice  ­ Scarcity → choice → opportunity cost 4. MARGINAL THINKING ­ economic thinking  ­ systematically evaluating a course of action ­ requires a purposeful evaluation of available opportunities to make the best decision ­ Marginial thinking ­ evaluate whether the BENEFIT of one more unit of  something is greater than the COST ­ example: one more slice of pizza & one more hour of  activity ­ “Is college worth it” ­ college & full time job 5. TRADE CREATES VALUE  ­ Markets ­ brings buyers and sellers together to exchange goods and services  ­ Trade ­ The voluntary exchange of goods and services between two or more  parties ­ KEY WORD: VOLUNTARY ­ You don't engage in trade if it makes you worse off, trade only  occurs if both parties feel they gain from the trade  ­ without trade yOU would have to produce everything you consume  ­ comparative advantage = the situation in which an individual, business, or country can produce at a lower opportunity cost than a competitor  ­ allows gains from trade to occur  ­ Trade controversies- india or china may have a comparative advantage (relative to US) in labor-intensive goods → outsourcing of jobs CONCLUSION: ­ ECONOMICS is the study of how people allocate their limited resources to  satisfy nealty unlimited wants ­ THE FIVE FOUNDATIONS OF ECONOMICS 1. Incentives  2. Trade offs 3. Opportunity cost 4. Marginal thinking 5. Trade creates value  What can be said about scarcity? ­ scarcity forces us to make choices  Which of the following situations illustrates an incentive? ­ Lee gives his children candy if they behave during dinner  The opp cost of buying a good is  ­ the value of the next­best alternative you could have purchased  With regards to marginal thinking, an individual will do an action if ­ marginal benefits > marginal cost The governor decides to increase funding for education. However, this will mean decreasing  funding for infrastructure. This situations illustrates:  ­ trade offs 


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Anthony Lee UC Santa Barbara

"I bought an awesome study guide, which helped me get an A in my Math 34B class this quarter!"

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.