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Use of limited resources for our unlimited wants.
OR
Study of social provisions |
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| goods available are too few for what we desire. Leads to opportunity cost |
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| Your next best alternative value. |
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| Economic Reasoning (Rationalizing) |
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| Need to look at marginal cost and benifits |
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Incorrect belief that because two variables occur together one must have caused the other.
Ex. Lights turning off after thunder. His wife actually turned off the lights. |
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| Incorrect belief that what is good or works for individual must be best for group or work for group |
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| Describing how world SHOULD BE |
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| overview of everything, economy as whole...inflation, business cycles, growth. |
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| Economics of individuals...pricing policies of firms, households decision on what to buy. |
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| stable prices, limit unemployment, stable prices |
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| efficiency equity and freedom |
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| Ignoring many details to focus on essential problem |
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| natural resources used for production |
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| productive talents and energy of people (physical and mental) |
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Products made by combination of resources and labor. Must be used for production. Clothes or anything we use for pleasure is consumer good.
Financial captial is NOT economic Capital |
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| use and knowledge to prove new ideas and products |
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Power structures that shape and direct behavior.
FORMAl- Missouri State University
INFORMAL- Christian sense of morality. |
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comparison of one price to another.
*FOCUS on more than real* |
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prices adjusted for inflation
*study more than nominal* |
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| not adjusted for inflation |
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What goods to produce and how much
OUTPUT mix |
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Who gets what
DISTRIBUTIVE mix |
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| Requires output mix that mirrors WHAT people want and are willing to buy |
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| Productive technical efficiency |
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| INPUT mix minimize opportunity cost for amount of output |
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| Requires specific good to be used by people who will utilize and value them the most |
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Doing all 3 other techniques at same time.
Not possible to make something better without hurting someone or something else. |
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| Individual choices...property rights, invisible hand. Let individual do what they want. Invisible hand will guide individual to do whats best |
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| Command Economy (Socialism) |
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| Relies on Government choices. Requires handful of people to know everything. |
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| Relies on both capitalism and socialism. Mix between public control and government control. |
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Production possibility frontier.
Absolute value of SLOPE of ppf is opportunity cost of 1 more x.
Absolute Value of RECIPRICAl of ppf shows opportunity cost for 1 more y. |
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| Law of increasing opportunity cost |
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| as you do more of something eventually the per unity (marginal) opportunity cost gets higher. |
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| Law of diminishing returns |
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| as any activity is extended it eventually becomes increasingly difficult to pursue that activity further. |
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Law of diminishing returns, increasing opp cost and specialization.
Technology and increase in capital shift ppf. |
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| Lowest opportunity cost. Everyone can potentially benefit. Impossible to have comparative and absolute advantage. |
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Households- Supply resources, land labor and capital.
Demand- goods and services
Businesses- Demand resources
Supply- goods and resources
Government- Define and protect private property. |
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-Maximum statutory price( passed by law)
-Meant to protect consumers
-Falls below Equilibrium. |
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SUPPLY AND DEMAND
INDEPENDENT OR DEPENDENT???? |
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Independent. One never changes the other.
To shift 2 curves you must have 2 distinct things.
- If you do shift both, you can only be certain about one thing. Either price or quantity not both at same time. |
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| measuring responsiveness to one variable to small changes in another |
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very responsive to small changes.
E>1
As price is increased TR goes down.
Price decreased TR up |
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Very unresponsive to small change.
E<1
Increase in price= TR up
Decrease in price=TR down |
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E=1
Inwards Bow shape
TR does not change with price change |
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E=infinite
Graph is horizontal
Price doesnt change quantity does |
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E=0
Vertial graph.
Quantiy same price changes |
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