EconExam_sheet - Econ Study Sheet CH1)Scarcity: fundamental...

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Econ Study Sheet CH1)Scarcity: fundamental concept of economics that indicates that there Is less of a good freely available from nature than people would like Scarcity necessitates rationing Resources: inputs used to produce Capital: human-made resources Opportunity cost: highest valued alternative Economizing behavior: choosing the option that offers the greatest benefit at the least possible cost Utility: the subjective benefit or satisfaction a person expects from a choice Marginal: effect of a change on current situation Pitfalls: ceteris paribus – other things constant Normative econ: “what ought to be” Positive econ: “what is”- economic science Fallacy of composition: erroneous view that what is good for one is good for the whole Scarcity and choice are two essential ingredients Scarcity and poverty are different; never rid of scarcity 8 points: the use of scarce resources to produce a good has an opportunity cost; incentives matter; individuals make decisions purposefully; information is scarce; marginal thinking; test of theory is ability to predict CH2)Trade creates value; both parties made better off; trade increases wealth of society’s resources Transaction costs: barrier to trade; the time, effort, and other resources needed to search, negotiate, and complete an exchange Middleman-cost reducer- person who buys and sells goods or services or arranges trades; reduces transaction costs Property rights: rights to use control and obtain the benefits from a good or service Private property rights: right to exclusive use of property, legal protection against invasion from others, right to sell, transfer, exchange, or mortgage the property Private owners: gain by employing their resources in ways beneficial to others; bear cost of ignoring wishes of others; have strong incentive to care for and properly manage what they own; have incentive to conserve for the future; have incentive to lower chance that property will cause damage to others’ property Production possibilities curve: outlines all combinations of total output that could be produced Shifting the curve outward: increase resource base; technology advancements; improvement in rules; working harder, less leisure Division of labor: method that breaks down the production of a product into a series of specific tasks each performed by different worker Comparative advantage: entities can gain by specializing in the production of goods they can produce cheaply and exchange for goods they cannot purchase cheaply Market organization: private parties make own plans and decisions: capitalism- resources owned privately Collective decision making: political process making decisions Socialism: ownership by the state; resource allocation determined by centralizing planning Ch3) Law of demand: inverse relationship b/t price and quantity Substitutes: goods that perform similar functions; increase in price for one = increase demand for other Consumer surplus: difference between max amount consumers would pay and the amount they
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EconExam_sheet - Econ Study Sheet CH1)Scarcity: fundamental...

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