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12 Cards in this Set

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5 propositions for economic reasoning from Economic Insight
People chose, and individual choices are the source of social outcomes.
Choices impose costs
Incentives Matter
Institutions matter
Understanding based on knowledge and evidence imparts value to opinions.
People chose, and individual choices are the source of social outcomes.
Scarcity compels us to compete in some form and it necessitates choice. People make choices based on their perceptions of the expected costs and benefits of alternatives. Choices involve risk; outcomes cannot be guaranteed because the consequences of choices lie in the future.
Choices impose costs
People incur costs when making decisions. Choices involve trade-offs among alternatives. People weigh marginal gains against marginal sacrifices. Ultimately, the cost of any decision is the next best alternative that must be forgone. Reasoned decision making leads to an increase in any activity in which expected benefits exceed expected costs, and a decrease in any activity in which expected costs exceed expected benefits.
Incentives Matter
incentives are rewards that encourage people to act. Disincentives discourage actions. People respond to incentives in predictable ways; when incentives change, behavior changes in predictable ways.
Understanding based on knowledge and evidence imparts value to opinions
The value of an opinion is determined by the knowledge and evidence on which it is based. Statements of opinion should initiate the quest for economic understanding, not end it.
If the annual growth rate of GDP is 2.5 percent, how many years will it take for GDP to double? What if the growth rate is 5 percent? 10 percent?
The rule of 70: 70/ annual growth rate of x= # years until x doubles.
. What does the term “economic development” mean? How is it meak
is the development of the economic wealth of countries or regions for the well-being of their inhabitants. It is difficult to measure because it isn’t tangible.
Define GDP and per capita GDP, and discuss recent U.S. data on levels and growth rates of each.
The GDP of a country is defined as the market value of all final goods and services produced within a country in a given period of time. It is a measure of the size of a countries economy.
GDP = consumption + investment + government spending + (exports − imports)
GDP/Population= per capita GDP
How do these figures compare to recent data from other countries?
The U.S. has the highest GDP at 12.36 trillion. The growth rate last year was 3.5% (the average annual growth rate is 3%). Per Capita GDP is $41,800 and the growth rate of per capita GDP is about 2%
. Why is a moderate and predictable inflation rate important to economic development?
If an inflation rate is unstable it discourages lending and borrowing. Without this activity in financial markets, there is no capital to stimulate growth of the economy which leads to economic development.
Name the two economic historians who shared the Nobel Prize in Economics in 1993. Using Chapter 1, briefly describe the contributions of these two scholars.
Douglass North and Robert Fogel
North observed that 1750 was a major turning point in the human existence and he says that the last 250 years are the era of modern economic growth. Fogel reported that before 1750, chronic hunger, malnutrition, disease, illness, and resulting early death were the norm for almost all people everywhere. Even wealthy people ate poorly. Exceedingly poor diets and chronic malnutrition were the norm because of the absence of choices, or the fact of scarcity. Food production seldom rose above basic life sustaining levels. People were caught in a food trap: Meager yields severely limited energy for all kinds of pursuits, including production.
What are the primary determinants of economic development? Define and describe some of the sources of productivity growth.
The primary determinants of economic development are factor endowments and productivity growth. Productivity is output per unit of input. It is often reported as output per unit of labor. Some sources of productivity growth are:
Technology- Technology allows for increased output from a given set of inputs. Also,
Specialization and division of labor is a source of productivity growth. Two workers can produce more than double the output of a single worker.
Investment in human capital- the skills and abilities of a population- This includes education and training. Also, nutrition and healthcare
Realization of economies of scale means that the % increase of inputs is greater than the %increase of outputs. Economies of Scale refers to the decreased per unit cost as output increases. More clearly, the initial investment of capital is diffused (spread) over an increasing number of units of output, and therefore, the marginal cost of producing a good or service decreases as production increases (note that this is only in an industry that is experiencing economies of scale)
Managerial and organizational improvements such as accounting procedures, inventory control methods, and worker compensation are sources of productivity growth as well.