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Terms in this set (47)
a system for coordinating society's productive activities
the social science that studies the production, distribution, and consumption of goods and services
an economy in which decisions about production and consumption are made by individual producers and consumers
refers to the way in which the individual pursuit of self-interest can lead to good results for society as a whole
the branch of economics that studies how people make decisions and how these decisions interact
when the individual pursuit of self-interest leads to bad results for society as a whole
a downturn in the economy
the branch of economics that is concerned with overall ups and downs in the economy
the growing ability of the economy to produce goods and services
the decision by an individual of what to do, which necessarily involves a decisions of what not to do
anything that can be used to produce something else
there is not enough of the resource available to satisfy all the various ways a society wants to use them
what you must give up in order to get it
when you compare the costs with the benefits of doing something
what to do with your next hour, what to do with your next dollar, etc.
decisions about whether to do a bit more or a bit less of an activity
anything that offers rewards to people who change their behavior
each individual's opportunities, and choices, depend to a large extent on the choices made by other people
provide goods and services to others and receive goods and services in return
gains from trade
people can get more of what they want through trade than they could if they tried to be self-sufficient.
each person specializes in the task that he or she is good at performing
when no individual would be better off doing something different
takes all opportunities to make some people better off without making other people worse off
means that everyone gets his or her fair share
simplified representation of a real situation that is used to better understand real-life situations
other things equal assumption
all other relevant factors remain unchanged
product possibility frontier
illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity produced of the other
What are resources and what is scarcity?
Resources are anything that can be used to produce something else. Scarcity is when a resource is not available enough to satisfy all the various ways a society wants to use it.
What are opportunity costs? What are some opportunity costs of going to college for a semester?
The opportunity cost is what you must give up in order to get an item that you want. Some opportunity costs of attending college for a semester would be the tuition money you pay, money for housing, and the forgone income you would have earned working in a job rather than attending school.
What are incentives?
Incentives are anything that offers rewards to people who change their behavior.
You are a policeman. Describe a behavior in your citizenry you want to change and either a positive or a negative incentive to do it.
A behavior in citizenry that a policeman could want to change would be to reduce the rate of crime. A positive incentive to do it would be getting paid normal wage or extra to achieve the purpose. A negative incentive would be asking the policeman to work extra hours without pay.
What are tradeoffs? Suppose you are considering whether to wake up early to go to the gym; compare the costs and benefits of doing so.
A tradeoff is a comparison of costs and benefits. By waking up early to go to the gym, you have benefits of being healthier and fit. The cost of waking up early for the gym is trading your time for sleep with your time for workout out.
What is marginal analysis?
Marginal analysis is making trade-offs at the margin by comparing the costs and benefits of doing a little bit more of an activity versus doing a little bit less.
Describe an equilibrium situation in supermarket checkout lines and why this is an equilibrium.
In supermarket checkout lines, people rush to the newly opened register in order to save time standing in line. Things will then settle down when shoppers can no longer improve their position by switching lines. This illustrates equilibrium because when the checkout lines become the same length, individuals cannot make themselves better off by doing something different.
What is an example of market failure?
Market failure is when an individual pursuit of self-interest found in markets makes society worse off; the market outcome is inefficient.
Decision Making Process; Why do we have to choose?
Resources, scarcity, opportunity costs.
What do we choose?
Self interest and incentives
How do we choose?
Benefit = Cost
Stop here, you cannot do any better, and going on will be harmful
Cost > Benefit
should do less, because it hurts more than it helps
Benefit > Cost
should do more to get more benefit
Examples of resources
money, workers, capital, land, human capital, entrepreneurship, natural resources
limited resources, but unlimited wants
Why does opportunity cost happen?
opportunity cost happens because you can't have everything you want
take opportunities to make yourself better off
reasons to act in a certain way
Positive and Negative Incentives
Positive: reward for acting as desired
Negative: punishment if don't act as desired
Recommended textbook explanations
Principles of Microeconomics
N. Gregory Mankiw
Solutions Manual for Use with Essentials of Investments
Alan J. Marcus, Alex Kane, Bruce Swensen, Zvi Bodie
Essentials of Economics, EconPortal for Essentials of Economics (access card)
Online Learning Center to accompany Essentials of Investments
Alan J. Marcus, Alex Kane, Zvi Bodie
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