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25 Cards in this Set
- Front
- Back
Opportunity Cost |
The value of the next best alternative, what you give up to do something else |
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Scarcity |
Unlimited Wants but limited available resources |
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3 questions all economies must answer |
1. What to produce? 2. How to produce? 3. For whom to produce? |
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Normative Economic Statement |
Opinion, what should, ought to be done |
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Positive Economic Statement |
Fact, what is testable |
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Macro-economics |
Study of economic as a whole |
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Micro-economics |
Study of how individuals, households, businesses, markets make decisions |
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Resources |
Land, labor, capital, entrepreneurship |
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Land or natural resources |
Actual land, minerals, natural gas, oil, etc. Anything that is not produced by man in its original form |
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Labor |
time used to produce something |
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Capital (economic definition) |
anything used to produce a good or service |
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2 types of capital |
physical capital: tools, machines, software etc human capital: education, skills |
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Ceteris Paribus |
Latin for all else constant or stays the same common assumption is economic models |
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Fallacy of composition |
Assuming that what is good for the individual is good for the group: Examples: 1. stand up at a basketball game you see better, if everyone stands up no one sees better 2. Paradox of Thrift (Keynes) good for individuals to save but if saving not spending and that hurts economy in short run
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Fallacy of assocation |
assuming that becomes two things occurs in time order that one causes the other.
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Pitfalls of economic thinking |
1. Assuming Ceteris Paribus exist in real life 2. Fallacy of composition 3. Forgetting that correlation is not causation or fallacy of association 4. Forgetting that time lags occur in real life: changes caused by policy changes do not occur immediately 5. Forgetting that good intentions do not guarantee good results |
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Broken Window Fallacy |
Assuming that destruction will stimulate the economy because forgetting secondary effects or what is "unseen" |
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Law of unintended Consequences |
When an action or policy causes unexpected results that occur because various pitfalls of economic thinking were used and secondary effects were not considered. |
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Marginal Analysis |
looking at the additional effects not the total: for example Marginal cost-the extra cost of producing one more unit or eating one more piece of pizza. Marginal benefit-the extra benefits one gets from eating one more piece of pizza |
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Costs-benefit analysis |
comparing the costs and benefits of an action, important to include secondary costs and benefits or the law of unintended consequences will occur.
An action should be done when the benefits are greater than the costs.
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Efficient |
When both productive and allocative efficiency occur: making the maximum amount of what consumers want with the available resources. |
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Specialization |
When individuals produce what they have a talent for, or have a comparative advantage in and then exchange with other individuals.
This allows both individuals to consume more than if they had to be self sufficient |
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Comparative advantage |
having the lowest opportunity cost in producing a good or service |
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Rational |
Acting in own best self-interest: Does NOT mean selfish Ex: If a mother jumps in front of a bus to save her child she is still rational: acting in her own self interest.
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Economics |
The study of choices made given limited resources. |