Econ- Chap.1 – Flashcards
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The core of economics is the idea that "there is no free lunch." You may be treated to lunch, which is "free" for you, but someone bears the cost-ultimately society. Scarce resources are required. Because society could have used these resources to produce something else, it sacrifices those other goods and services in making the lunch available. This is an example of ______
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opportunity costs
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The pleasure, happiness, or satisfaction obtained from consuming a good or service. They allocate their time, energy, and money to maximize their satisfaction.
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utility
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With utility, because people weigh costs and benefits, their economic decisions are _____ or ______, not "random" or "chaotic."
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"purposeful" or "rational"
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With purposeful behavior, how are consumers purposeful?
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with deciding what goods and services to buy
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With purposeful behavior, how are business firms purposeful?
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with deciding what products to produce and how to produce them
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With purposeful behavior, how are government entities purposeful?
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with deciding what public services to provide and how to finance them.
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With purposeful behavior, economics assumes that human behavior reflects _____?
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rational self-interest
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What does purposeful behavior mean?
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People make decisions with some desired outcome in mind.
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The Economic Perspective focuses on what 3 aspects?
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1. Scarcity and Choice 2. Purposeful Behavior 3. Marginal Analysis: Benefits and Costs
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What is marginal analysis?
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comparisons of marginal benefits and marginal costs, usually for decision making. Most choices or decisions involve changes in the status quo, meaning existing state of affairs.
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With marginal analysis, each option involves marginal benefits and, because of scarce resources, ____ _____.
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marginal costs
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With marginal analysis, in making choices rationally, the decision maker must compare ___ amounts.
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two amounts
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With marginal analysis, opportunity costs are present whenever a _______.
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decision is made
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With marginal analysis, in a world of scarcity, the decision to obtain the marginal benefit associated with
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some specific option always includes the marginal cost of forging something else.
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What is an economic principle?
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A statement about economic behavior of the economy that enables prediction of the probable effects of certain actions
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Examines either the economy as a whole of its basic subdivisions or aggregates, such as government, household, and business sectors.
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Macroeconomics
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With macro, a collection of specific economic units treated as if they were one unit.
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Aggregate.
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In using aggregates, macroeconomics seeks to . . .
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obtain an overview, or general outline, of the structure of the economy and the relationships of its major aggregates.
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Micro of Macro speaks of such economic measures as total output, total employment, total income, aggregate expenditures, and the general level of prices in analyzing various economic problems.
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Macro
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The part of economics concerned with individual units such as a person, a household, firm, or an industry.
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Microeconomics
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At this level of analysis, the economist observes the details of an economic unit, or very small segment of the economy, under a figurative microscope.
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Microeconomics
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Micro or Macro where we look at decision making by individual customers, workers, households, and business firms. Measure the price of a specific product, the number of workers employed by a single firm, the revenue or income of a particular firm, government entity, or family.
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Micro
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Focuses on facts and cause-and-effect relationships. It includes description, theory development, and theory testing(theoretical economics). Avoids value judgments, tries to establish scientific statements about economic behavior, and deals with what the economy is actually like.
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Positive economics
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Incorporates value judgments about what the economy should be recommended to achieve a desirable goal (policy economics). It looks at the desirability of certain aspects of the economy. It underlies expressions of support for particular economic policies.
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Normative economics
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"The unemployment rate in France is higher than that in the US." Norm or Pos?
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Positive
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"France ought to undertake policies to make its labor market more flexible to reduce unemployment rates" Norm or Pos?
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Normative
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Most of the disagreement among economists involves norm or pos questions.
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Normative, which means most economic controversy reflects differing opinions or value judgments about what society should be like.
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The need to make choices because economic want exceed economic means.
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economizing problem
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What 3 things are part of the INDIVIDUAL economizing problem?
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1. Limited Income 2.Unlimited Wants-can never be fully satisfied 3.A Budget Line
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Because we have only limited income but seemingly insatiable wants, it is in our self-interest to economize: . . .
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to pick and choose goods and services that create maximum utility.
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A schedule or curve that shows various combinations or 2 products a consumer can purchase with a specific money income
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Budget line(budget constraint)
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What 3 aspects are part of A Budget Line?
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1. Attainable and Unattainable Combinations 2.Tradeoffs and Opportunity Costs 3.Choice 4.Income changes
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With A Budget line, with attainable and unattainable combinations, u can only buy things that are . . .
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within ur budget, not things that are unattainable. All combinations beyond the budget line are unattainable.
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With A Budget line, with Tradeoffs and Opportunity Costs, the straight-line budget constraint, with its constant slope, indicates ____
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constant opportunity cost
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With A Budget line, with Choice, limited income forces people to choose what to . . .
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buy and what to forgo to fulfill wants. You will evaluate your marg b and c to make choices that maximize your satisfaction. Other people will make diff choices then you will.
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With A Budget line, with Income Changes, an increase in money income shifts the budget line to the ___, a decrease in money shifts to the ____.
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increase:right, decrease:left
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What 2 things are involved in Society's Economizing Problem?
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Scarce Resources and Resource Categories: land, labor, capital, and entrepreneurial ability
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All natural, human, and manufactured resources that go into the production of goods and services.
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Economic resources
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What 4 general categories to economists classify economic resources?
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Land, Labor, Capital, and Entrepreneurial Ability
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All manufactured aids used in producing consumer goods and services. Ex: all factory, storage, transportation, and distribution facilities, as well as tools and machinery.
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Capital
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Economists refer to the purchase of capital goods as ____.
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investment
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What is the difference between capital goods and consumer goods?
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Consumer goods satisfy wants directly, whereas capital goods do so indirectly by aiding the production of consumer goods.
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Because land, labor, capital, and entrepreneurial ability are combined to produce goods and services, they are called the _______.
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factors of production, or "inputs"
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What 4 aspects are part of the Production Possibilities Model?
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Production Possibilities Table, PP Curve, Law of Increasing Opportunity Cost and Optimal Allocation
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The Production Possibilities Model initially assumes what 4 things?
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Full employment, Fixed resources, Fixed technology, and Two goods
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The alternatives and choices society faces can be understood through this macroeconomic model of production possibilities.
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Production Possibilities Model
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The Production Possibilities Model, explain fixed technology.
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The method used to produce output is constant
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The Production Possibilities Model, explain full employment
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Econ employing all available resources
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The Production Possibilities Model, explain fixed resources
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The quality and quantity of the factors of production are fixed.
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The Production Possibilities Model, explain two goods
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Econ producing only 2 goods: consumer goods and capital goods.
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With the Production Possibilities Model and the graph for it, why are A and E the 2 extremes?
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A represents economy devoted all its available resources to the production of robots(capital goods) and E would be for pizzas(consumer goods). They are unrealistic extremes because an economy typically produces both capital and consumer goods.
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_____ lists the different combinations of two products that can be produced with a specific set of resources, assuming full employment.
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Production Possibilities Table
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The data presented in a production possibilities table are shown graphically as ______. This displays the different combination of goods and services that society can produce in a fully employed economy, assuming a fixed availability of supplies of resources and constant technology.
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Production Possibilities Curve
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With the Production Possibilities Curve, why is the curve a constraint?
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because it shows the limit of attainable outputs. Points on the curve are attainable as long as the economy uses all its available resources.
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Principle: as the production of a particular good increases, the opportunity cost of producing an additional unit rises. Ex: comparing the point of pizzas vs. robots on a Production Possibilities Table.
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Law of Increasing Opportunity Costs
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The law of increasing opportunity costs is reflected in the shape of the ______.
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production possibilities curve. The curve is bowed out from the origin of the graph and shows that when the economy moves from A to E, it must give up successively larger amounts of industrial robots.
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The economic rationale for the law of increasing opportunity costs is that . . .
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economic resources are not completely adaptable to alternative uses. Many resources are better at producing one type of good than at producing others.
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Economic Rationale and increasing opportunity costs for society
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Start and A and move to B, there is a shift in resources whose productivity is relatively high in pizza production and low in industrial robots. As we move from B to C, C to D, and so on, resources highly productive of pizzas become increasingly scarce. To get more pizzas, resources whose productivity in industrial robots is relatively great will be needed.
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With MC and MB, any economic activity should be expanded as long as ___ exceeds ____.
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marginal benefit exceeds marginal cost. It should be reduced if MC exceeds MB
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With MB and MC, the optimal amount of activity occurs when (what formula)?
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MB=MC
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With unemployment in the PP Model, a move toward full employment would yield . . .
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a greater output of one or both parties
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*Is Economics an old or new branch of study?
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New
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*What is micro?
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Management of my business unit (more narrow than macro).
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*What were Adam Smith's 2 concerns and did an investigation cuz of it?
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1. Why some nations are rich and some are poor 2. Even if country rich, country still had poor and rich. Refering to UK cuz rich and was dominating nation.-This is cuz of lack of edu, etc.
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*What did Adam Smith write in 1759?
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"The Theory of Moral Sentiment"
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*From Adam Smith, it was discovered that export driven nations are _____ and import driven nations are____.
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export driven = wealthy import driven = poor Ex today: China, India vs. Africa, Bangladesh
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*What is economics?
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Exploring the prosperity of nations and reasons why prosperity. How resources are being distributed. Reason for prosperity is poverty.
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*FED-what they do, when they came around
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Can pump $ into the economy. They came up in 1930s, but never involved with running of the country. Only made sure that $ circulating. No bailouts. Bank failures
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*Economics boils down to decisions by trends or individual made by who?
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humans. Part of qualitative social science
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*Who came up with(DC?) economics being concerned with human behavior (social science) and the science of human survival, sustainability and progress.
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J.M. Keynes
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*Economics studies the _____, ______, and ______ of goods and services. If this cycle is disrupted, then everything falls apart, like econ right now.
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Production(manufact), Distribution(market), and Consumption(consumers) of goods and services.
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*With the market, a producer's incentive is ____ and a consumer's incentive is ____.
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Producer: profit-to maximize it. Consumer-satisfaction of what buying (qualitative)
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*As a social science, Economics today is more of science and math or art?
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More of science and math
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*What 2 factors are effecting our economy now?
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1.Element of greed in CEOs=things collapse Fear-where peeps investing today. 2. Not sure about where $ will go or our jobs.
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*Macro
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broad picture
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*Micro
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single unit. The study of units, individual households, like ex: GM
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*What does an Economist do?
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They have estimates, continually changes and need to update to go w/ the changes. Predictions are based on past trends, if it continues. But things can change-that are unpredictable.
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*What does "Economic Methodology" mean? What 2 types of statements come from this?
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How economics is done or the way it should be done. How do you resolve and study these issues of the economy. 2 Statements: Positive and Normative
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*"Price control during drought will lead to food shortages and starvation death" Example of normative or positive?
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Positive- because it conforms the reality and you can get info on "price control", supply and deathrate.
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*"People should be protected against price gouging, during a drought; hence the Government should use price control." Example of normative or positive?
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Normative
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*What are the 5 steps in Economic Analysis (A Scientific Approach) ?
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1.Recognize the problem (ex: bankruptcy, recession, loans, etc) 2.Make assumptions 3.Develop a model 4.Make predictions 5.Test the model
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*Marginal
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refers to extra/additional or next best.
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*The best next alternative and how much it costs. Sacrifice should be less value than benefit. Ex: taking this class is a small sacrifice for more huge benefit. Which principle?
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The Principle of Increasing Opportunity
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*Principle: Having more of one good thing usually means having less of another
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The Scarcity Principle
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*Principle: Take no action unless its marginal benefit is at least as great as its marginal cost
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The Cost-Benefit Principle
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*Principle: Use the resources with the lowest opportunity cost before turning to those with higher opportunity costs.
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The Principle of Increasing Opportunity
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*Principle: Efficiency is an important social goal, because when the economic pie grows larger, everyone can have a larger slice. Basically, goal to use resources efficiently.
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The Efficiency Principle
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*What 2 reasons is the econ bad now?
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1.Savings have ↑, even though people have jobs, they are saving more for the future cuz uncertain of future. 2. Peeps lost jobs
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*Why is self-interest not selfish?
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Not selfish because of the Spill-over or Ripple effect cuz self-interest has an effect on helping others also, not just you. It pays the laborers, helps increase better resources for the company, etc.
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*What is a hypothesis?
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A statement that can be tested, meaning it can be proved or disproved.
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*If it is market driven, then it is _____ driven
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consumer driven
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*Production is dominated by these 3 types
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1.Labor Intensive (labor driven) 2.Capital Intensive (Capital Driven) 3.Knowledge based technology
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*What are the 4 fundamental questions before decision makers?
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1.What to produce? 2.How to produce it?-choice of technology and technique of the product driven by the available resources. 3.For whom to produce? 4.How to accommodate change?
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*What is free market?
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gov doesn't intervene, but not a successful business model
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*"The Market System" is an economic principle coined by who?
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Adam Smith(1776: An Inquiry into the nature and causes of the wealth of nations)
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*The 1776 book written by Adam Smith was about?
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Said that the greatest benefit to a society is brought about by individuals acting freely in a competitive marketplace in the pursuit of their own self-interest.
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*With Adam Smith, what is the "Invisible Hand"?
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A natural phenomenon that guides free markets and capitalism through competition for scarce resources.
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*What are the 2 measures of econ efficiency with the Efficiency Principle?
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Productive and Allocative
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*With the Efficiency Principle, what is Productive?
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least-cost method of production
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*With the Efficiency Principle, what is Allocative?
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Producing goods/services most desired by the society.
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*4 parts of Great Depression
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1.Very high level of unemployment-25% (today 9.5%) 2.Fall in Prices (General Price Level). --no job = no means to buy stuff = lower prices-- 3. Deflation. Bankruptcy, Overproduction 4.Role of Central Bank (FED)- Federal Reserve
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*Describe the 4th question of the 4 fundamental questions before decision makers?
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How to accommodate change 1.Guiding function of price 2.Promoting technological advances-for the long run, needs to be updated constantly. 3.Promoting capital accumulation ---Because of constant changes, does econ have skills to change and adapt.
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*What does each point represent in the formula ∏ = TR-TC
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TR= revenue measured of goods sold at one price= p∙q (price ∙ quality). TC is FC + VC (fixed cost and variable cost)
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*What is Normative and its language?
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Lang: ought to be, should be, can be, (good/bad). Qualitative, value based= driven by one's opinion. Can be very subjective in nature = vary from person to person-opinion based
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*What is Positive and its lang?
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Lang: it is, it was, it will be. Quantitative empirical- data is objective. Cause and effect
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*In a market, what is a producer's incentive?
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Incentive is profit and to maximize it
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*In a market, what is the consumer's incentive?
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Incentive is Satisfaction(qualitative) of what buying and Utility-how useful it is, maximization
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