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Economics
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Social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants (science of scarcity) (study of choices)
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Scarcity
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We have unlimited wants, but limited resources and that lack of resources forces us to make choices
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Microeconomics
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Study of small economic units such as individuals, firms, and industries (Ex: Supply and Demand in specific markets, production costs, labor markets)
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Macroeconomics
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Study of large economy as a whole or economic aggregates (Ex: Economic growth, government spending, inflation, unemployment, international trade)
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Theoretical Economics
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Economists used scientific method to make generalizations and theories
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Policy Economics
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Theories that are then applied to fix problems or meet economic goals
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Positive Statements
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Statements based on facts. Avoids value judgements. (Tells you what is).
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Normative Statements
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Includes value judgements. (Tells you what ought to be).
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5 Key Economic Assumptions
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1. Society has unlimited wants and limited resources (scarcity)
2. Due to scarcity, choices must be made. Every choice has a cost (a trade-off)
3. Everyone's goal is to make choices that maximize their satisfaction. Everyone acts in their own self-interest
4. Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice
5. Real-life situations can be explained and analyzed through simplified models and graphs
2. Due to scarcity, choices must be made. Every choice has a cost (a trade-off)
3. Everyone's goal is to make choices that maximize their satisfaction. Everyone acts in their own self-interest
4. Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice
5. Real-life situations can be explained and analyzed through simplified models and graphs
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Marginal
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Additional
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Marginal Analysis
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Making decisions based on increments (You will continue to do something as long as the marginal benefit is greater than the marginal cost).
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Trade-Offs
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All the alternatives that we give up when we make a choice
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Opportunity Cost
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Most desirable alternative given up when you make a choice
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Utility
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Satisfaction from products
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Allocate
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Distribute
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Price
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Amount the buyer (or consumer) pays for a good (or product)
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Cost
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Amount seller pays to produce said good
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Investment
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The money spent by BUSINESSES to improve their production
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Consumer Goods
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Created for direct consumption (Pizza)
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Capital Goods
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Created for indirect consumption; Goods used to make consumer goods. (Oven, Blender, Knives)
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Profit
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Profit = Revenue - Costs
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Four Factors of Production
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1. Land- All natural resources that are used to produce goods and services (EX: Water, Sun, Plants, and Animals)
2. Labor- Any effort a person devotes to a task for which that person is paid
3. Capital- Physical Capital and Human Capital (see these terms separately)
4. Entrepreneurship- Ambitious leaders that combine the other factors of production to create goods and services
2. Labor- Any effort a person devotes to a task for which that person is paid
3. Capital- Physical Capital and Human Capital (see these terms separately)
4. Entrepreneurship- Ambitious leaders that combine the other factors of production to create goods and services
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Physical Capital
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Any human-made resource that is used to create other goods and services
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Human Capital
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Any skills or knowledge gained by a worker through education and experience
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Entrepreneurs
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1. Take the Initiative
2. Innovate
3. Act as the Risk Bearers
4. All in order to PROFIT
5. PROFIT= Revenue-Costs
2. Innovate
3. Act as the Risk Bearers
4. All in order to PROFIT
5. PROFIT= Revenue-Costs