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scarcity
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situation where sources are limited
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examples of scarcity
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money
time
time
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economics
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the study of how to best allocate scarce resources among competing uses.
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microeconomics
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deals with behaviors of individual economic units
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microeconomics includes
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consumer, business firms, workers, investors
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macroeconomics
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deals with aggregate economic quantities
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macroeconomics includes
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GDP, inflation, interest rate, unemployment
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what are the three core issues of economics
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what to produce
how to produce these products
who consumes the product
how to produce these products
who consumes the product
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positive economics
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analysis that answers the question "what is" or "what will be"
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"what is an impact on the change in the price of iPod on its sales?" is an example of what type of economics?
answer
positive economics
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"How does college education effect the average persons learning?" is an example of what type of economics?
answer
positive economics
question
normative economics
answer
analysis that answers the question "what should be:
question
"should the government increase minimum wage?" is an example of what type of economics?"
answer
normative economics
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"should government increase income tax?" is an example of what type of economics?"
answer
normative economics
question
suppose the U.S. government was thinking about imposing a traffic terrify on import of foreign objects. What is an example of positive economics and an example of normative economics?
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PE: would terrif raise price of a car/foreign & domestic sales?
NE: should the government impose the tarrif? If imposed what is the optimal rate of the tarrif?
NE: should the government impose the tarrif? If imposed what is the optimal rate of the tarrif?
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Assumptions
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economist use assumptions to make things simpler and focus on what really matters.
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model
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a model is an abstract representation of reality
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ceteris paribus
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nothing else is changing
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what are the economic ways of thinking
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models/assumptions
Isolate variables
Isolate variables
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isolate variables
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to study the realtionship between 2 things, we assume that all other things remain unchanged
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opportunity cost (opp. cost)
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the most desired goods or services that are forgone in order to obtain something else. (the best next alternative)
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"if you cannot buy a CD--> may be able to download it (whatever the cost)" is an example of what principle of economics?
answer
opportunity cost
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what is the opportunity cost of coming to class
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study time
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production possibility curve (Frontier) (PPC/PPF)
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a curve showing all combinations of goods and services that can be produced with resources and technology available.
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what do the points on the PPC represent?
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maximum output that can be produced. They are efficient.
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points inside (not on the PPC) are??
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inefficient
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points outside the PPC are?
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unattainable
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Law of increasing opportunity cost
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the more something we produce, the greater the opportunity cost of producing it.
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Do resources transfer perfectly from the production of one good to another?
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no
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what does the Law of increasing opportunity cost do to the PPC?
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causes downward sloping and bowed out of the orgin (concave)
PPC becomes steeper as we move down
PPC becomes steeper as we move down
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inefficiency
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PPC shows potential output
If we are inefficient, actual output will be less that potential output
If we are inefficient, actual output will be less that potential output
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economic growth
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an increase in output (expansion of PPC)
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marginal principle
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increase the level of activity if marginal benefits (MB) exceeds marginal cost (MC)
reduce the level of activity of activity if MC exceeds MB. If possible, pick the level where MB equals MC.
reduce the level of activity of activity if MC exceeds MB. If possible, pick the level where MB equals MC.
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MB
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additional benefit from an increase in an activity
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MC
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additional cost from an increase in activity
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Total benefit (TB)
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benefit of all units of an activity
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Total cost (TC)
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cost of all units of an activity
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Adam Smith
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"father of economics"
"invisible hand"
"market mechanism"
"Laissez Faire"-hands off
"invisible hand"
"market mechanism"
"Laissez Faire"-hands off
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Karl Marx
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"government must own all means of production"
"command economy"
"command economy"
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John Maynard Kaynes
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"government should play an active, but not all-inclusive role in managing the economy"
"mixed economy"
"mixed economy"
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