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27 Cards in this Set

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Economics
The study of how people make choices when faced with scarcity
scarcity
When wants exceed resources when price is zero
voting with dollars
In our free market economy we let price act as the rationing device. The people who place the highest value on the good will be the most willing to pay.
Diamond-water paradox
Diamonds are very scarce; water is very plentiful.
opportunity cost
the next best sacraficed opportunity
Revenue
Price times quantity
Microeconomics
small individual parts of the economy
Macroeconomics
economy-wide questions
Three basic micro questions
What and how much to produce
How to produce
For whom do we produce
capital
Any physical resource used to produce other goods and services
profit
Signal that firms are "doing good"
bankruptcy
Signal that firm is in the wrong market
Free Market System
Goods and services go to those with the highest willingness to pay. We make the implicit assumption that willingness to pay equals marginal benefit.
Basic premise of economics
people are rational

marginal benefit>marginal cost
positive statement
a "what is" statement
normative statement
a "what ought to be" statement
economic model
a description of some aspect of the economic world that includes only those features of the world that are needed for the purpose at hand
economic theory
a generalization that summarizes what we understand about thte economic choices that people make and the economic performance of industries and nations based on models that have repeatedely passed the test of corresponding well with real-world data.
ceteris paribus
a latin term that means "other things being equal" used so that one factor is changed at a time.
natural experiment
A situation that occurs in the ordinary course of economic life
statistical investigations
looks for coorelations
Post Hoc Fallacy
a latin phrase meaning "after this, therefore because of this" The second event causes the first event.
sunk cost
a previously incurred and irreversible cost
Why some decisions may appear irrational
-We all have different expected costs and benefits
-Imperfect information
types of models
-tabular
-verbal
-graphical
-mathematical
Goal of model
-not realism
-a lot of simplifying assumptions make good predictions to reduce uncertainty
largest items we spend our income on
-medical care
-housing
-transportation
-food
-recreation