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social science that studies the choices that individuals, businesses, governments and societies make to cope with scarcity and incentives of those choices
The Wealth of Nations (1776), The Invisible Hand, market mechanism (more trucks, less tanks), Laissez Faire (gov out of econ)
cost of accepting one action over another, losing the benefit of what is rejected, hoping that the benefit of your choice exceeds the cost of what is lost
Good/Bad of Theory/Models
reality through politics and imperfect knowledge hints at the flaws of theory
cost of accepting one action over another, losing the benefit of what is rejected and hoping the benefit exceeds the cost of what is lost
Production Possibilities Curve
combination of things you will likely produce at a given time with the resources you have
graphs the relationship between price and demand on an individual basis and market basis
Limit to producing on the production possibilities
marginal cost; production must not exceed the point to where marginal costs exceed marginal revenue
Measure of Production Possibilities Curve
measure whether or not the production of another product is good, if its profits are less than what you could have gotten from the sale of the other
if you have a skill by which you can produce a product faster and better than any other, then that skill should be exploited; ability of a firm to produce a specific good at a lower cost than competitors
only exists if you are able to produce a product at a lower cost; ability of a firm to produce a specific good with fewer resources than its competitors
Comparative or Absolute Better?
Comparative > Absolute; problem is that you my be able to produce something with less cost, but may not be very profitable (ex. Braille bumper stickers)
Skill for Comparative Advantage
produce a product faster and better than any other, that skill should be exploited
Firm vs. Market
Firms: econ unit that hires factors of production and organizes those factors to produce and sell goods and services
Markets: are any arrangement that enables buyers and sellers to get info and do business w/ each other
Market Place vs. Market Network
markets are not necessarily a place, but a network such as the food market; transactions are facilitated by making deals with the use of telephone equipment, fax machines, computers, etc.
social arrangements that govern ownership, use, disposal of resources, goods and services
When Property Rights are enforced
incentive to specialize and produce goods in which you have comparative advantage to maximize use of said property
When environment exists where property can be stolen
effort/resources used in order to protect said property
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