ECON 202

SIX PRINCIPLES OF (MICRO) ECONOMICS

• Economic agents derive benefits from the production and consumption of goods and services.

• Economic agents are maximizers; they try to maximize, but this goal is constrained by the fundamental concept of economics!

• Since resources are scarce, choices have to be made about how those resources are to be used.

• Every choice has a cost; and all costs are Opportunity Costs.

• In sum, the primary objective of economic agents is to maximize (something) subject to the constraint of scarce resources.

This concept is generalizable to the idea that when making choices, economic agents should compare the costs and benefits of each alternative, and choose the option with the greatest

Net Benefit = Benefits - Costs.

This is what is meant by Rational Decision making or (Economic Rationality) by economic agents.

(For a good example of economic rationality, listen to the following audio clip: http://www.npr.org/templates/story/story.php?storyId=4277974&sourceCode=RSS )

This rule is the basis for:

Consumer Behavior (utility max)

Producer Behavior (profit max)

Cost-Benefit Analysis