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| We must make choices because we live in a world of |
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| the study of the choices consumers, business managers, and govt officials make to attain goals |
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| What are the 3 key economic ideas |
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1. people are rational
2. people respond to economic incentives
3. optimal decisions are made at the margin |
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| economists dont assume they know everything about people, but they |
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| assume consumers and firms will us all available information to achieve their goals and rational individuals weigh benefits and costs of each action |
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optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost
this is "marginal analysis" |
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| a group of buyers and sellers of a good or service and the institution or arrangement by which they trade |
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| producing more of one good or service means producing less of another good or service |
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| the way to determine the value is |
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| what has to be given up in order to produce it |
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| is the highest value alternative that must be given up to engage in that activity |
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| trade offs in a society force 3Qs |
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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) |
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| centrally planned economies |
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| govt decides how economic resources can be allocated |
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| the decisions of households and firms interacting in marketes allocate resources |
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| centrally planned economies nature? |
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- govt makes factories and stores follow their orders rather than consumers orders
- standard of living declines
- dictatorship
- cuba/north korea |
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| nature of market economies |
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- all high income democracies are market economies
- if they dont meet consumers needs, they wont survive
- rewards hard work |
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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 |
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| occurs when good or service is produced at lowest possible cost |
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| occurs when production is in accordance w consumer preferences |
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| both the buyer and seller are better off |
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| inefficiency can occur when |
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govt severaly restrictes resources
*imports, environment, etc |
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| what is the trade off between efficiency and equity |
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| many prefer economic outcomes that are fair or reasonable |
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| why do we make economic models explicit |
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so they can be APPLIED
*assumption of simplicity is understood |
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| is something measurable w diff values (ex: doctors incomes) |
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economic model maybe correct or incorrect about a variable
* use statistics to test |
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| acceptance to economic hypothesis are usually |
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| tenative or "not rejected" |
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| if the hypothesis was clearly rejected, then it was |
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| positive first, then normative, which depends on.. |
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| political views, preferences, etc |
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how households and firms make choices, how they interact in markets, how govt influences them
*prices + products |
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| economy as a whole deals with inflaton, unemployment, econ growth |
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| is not an invention, but a practical application of an invention |
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| difference in revenue and costs (including opportunity cost) |
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labor
capital
natural resources
entreprenuership |
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manual goods to produce others
*capital stock = country's total
*human capital |
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rise/run
larger the slope, the steeper the change will be |
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| as one variable increases, so does the other |
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| when one variable increases, the other decreases |
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| ommited variables can create |
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| false correlating relationships |
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| PC = value in 2nd per - value in 1st per/ value in 1st per |
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