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Economics Ch 1
Hubbard
43
Economics
Undergraduate 3
09/24/2013

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Cards

Term
We must make choices because we live in a world of
Definition
Scarcity
Term
Economics is
Definition
the study of the choices consumers, business managers, and govt officials make to attain goals
Term
What are the 3 key economic ideas
Definition

1. people are rational

2. people respond to economic incentives

3. optimal decisions are made at the margin

Term
economists dont assume they know everything about people, but they
Definition
assume consumers and firms will us all available information to achieve their goals and rational individuals weigh benefits and costs of each action
Term
margin means
Definition
extra or additional
Term
Explain MB=MC
Definition

optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost

 

this is "marginal analysis"

Term
market
Definition
a group of buyers and sellers of a good or service and the institution or arrangement by which they trade
Term
trade offs
Definition
producing more of one good or service means producing less of another good or service
Term
the way to determine the value is
Definition
what has to be given up in order to produce it
Term
opportunity cost
Definition
is the highest value alternative that must be given up to engage in that activity
Term
trade offs in a society force 3Qs
Definition

1. what goods and services will be produced (we decide)

2. how they will be produced (trade off between workers and machines)

3. who will recieve them

(depends on income distrubution)

Term
centrally planned economies
Definition
govt decides how economic resources can be allocated
Term
market economy
Definition
the decisions of households and firms interacting in marketes allocate resources
Term
centrally planned economies nature?
Definition

- govt makes factories and stores follow their orders rather than consumers orders

- standard of living declines

- dictatorship

- cuba/north korea

Term
nature of market economies
Definition

- all high income democracies are market economies

- if they dont meet consumers needs, they wont survive

- rewards hard work

Term
modern mixed economy
Definition

primarily a market economy because decisions are made from market interaction, but govt plays a significant role in allocation of resources

*environment, civil rights, etc

Term
productive efficiency
Definition
occurs when good or service is produced at lowest possible cost
Term
allocative efficiency
Definition
occurs when production is in accordance w consumer preferences
Term
voluntary exchange
Definition
both the buyer and seller are better off
Term
inefficiency can occur when
Definition

govt severaly restrictes resources

*imports, environment, etc

Term
what is the trade off between efficiency and equity
Definition
many prefer economic outcomes that are fair or reasonable
Term
why do we make economic models explicit
Definition

so they can be APPLIED

*assumption of simplicity is understood

Term
economic variables
Definition
is something measurable w diff values (ex: doctors incomes)
Term
hypothesis
Definition

economic model maybe correct or incorrect about a variable

* use statistics to test

Term
acceptance to economic hypothesis are usually
Definition
tenative or "not rejected"
Term
if the hypothesis was clearly rejected, then it was
Definition
too simplified
Term
positive analysis
Definition
what is
Term
normative analysis
Definition
what ought to be
Term
positive first, then normative, which depends on..
Definition
political views, preferences, etc
Term
microeconomics
Definition

how households and firms make choices, how they interact in markets, how govt influences them

*prices + products

Term
macroeconomics
Definition
economy as a whole deals with inflaton, unemployment, econ growth
Term
innovation
Definition
is not an invention, but a practical application of an invention
Term
revenue
Definition
ppu x units sold
Term
profit
Definition
difference in revenue and costs (including opportunity cost)
Term
factors of producton
Definition

labor

capital

natural resources

entreprenuership

Term
capital
Definition

manual goods to produce others

*capital stock = country's total

*human capital

Term
slopes of lines
Definition

rise/run

 

larger the slope, the steeper the change will be

Term
positive relationship
Definition
as one variable increases, so does the other
Term
negative relationship
Definition
when one variable increases, the other decreases
Term
ommited variables can create
Definition
false correlating relationships
Term
reverse casualty
Definition
x --> Y, not Y --> X
Term
tangent line measures
Definition
nonlinear slope
Term
percentage change
Definition
PC = value in 2nd per - value in 1st per/ value in 1st per
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