Economics - Economics satisfy their unlimited wants....

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Economics 12/04/2008 10:23:00 Economics- a social science that studies how people and societies allocate their limited resources to satisfy their unlimited wants. Scarcity- Our inability to satisfy all of our wants Scarcity is the most basic concept in all of economics Microeconomics- the part of economic analysis that studies the decision-making undertaken by individuals, households, and firms Looking through a microscope at the smaller parts of our economy Macroeconomics- the part of economic analysis that studies the behavior of the economy as a whole Focus on economy-wide activities such as inflation, unemployment, and national income The economic way of thinking considers that every choice involves a trade-off. According to the rationality assumption, people do not intentionally make decisions that would leave them worse off. Positive economic analysis (What is) is based solely on scientific findings. Positive analysis can be tested using models Normative economic analysis (what ought to be) involves making value judgments.
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Ceteris Paribus (Latin for other things being equal) is the logical device used in economic models to help identify cause and effect The fallacy of composition- what is true for the parts, must be true for the whole The Post Hoc Fallacy- a first even causes a second event because the first occurred before the second Scarce resources earn income, land earns rent, labor earns wages, capital(machines, equipment, buildings and inventory) earns interest, and entrepreneurship (management skill) earns profit The opportunity cost of any action is the value of the next best alternative given up to obtain the desired object or to satisfy a want Production possibilities curve is a graphical representation of the scarcity problem and opportunity cost. The individual PPC shows the trade-off that occurs when more of one output is obtained at the sacrifice of another. A B 6 hours spent with friends C 6 hours spent studying D
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E F D C B A Demand The relationship between the price of a good and the amount that buyers want to purchase (the quantity demanded) The law of demand states that there is a negative or inverse relationship between the price of a good and the quantity demanded. This relationship can be represented graphically by the demand curve a negatively sloped line that showes the inverse relationship between price and quantity demanded. P Q d An increase in price leads to a decrease in quantity demanded. P Q d A decrease in price leads to an increase in quantity demanded Supply The relationship between the price of a good and the amount that sellers offer for sale (quantity supplied) The law of supply states that there is a positive, or direct, relationship between the price of a good and the quantity supplied. This relationship is represented graphically b the supply curve, a positively sloped line
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This note was uploaded on 04/22/2008 for the course ECON 201 taught by Professor C.liedholm during the Spring '07 term at Michigan State University.

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Economics - Economics satisfy their unlimited wants....

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