Economics Final Study Guide

Economics Final Study Guide - Economics Final Study Guide...

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Economics Final Study Guide The four types of resources are (1) land and natural resources, (2) human resources, (3) capital, and (4) entrepreneurship. Scarcity – the fact that there aren’t enough resources to satisfy all our wants; it is objective, NOT subjective; it necessitates rationing; leads to competitive behavior. Incentive – anything that changes the costs or benefits of a choice. Incentives to an option make people more likely to choose that option. Rationing – allocating a limited supply of a good or resource among those who want it. The three methods of rationing are (1) by the government, (2) first-come first-served, and (3) by the market (price is used to ration goods and resources to those who are willing to pay for them). Opportunity Cost – the choice to do one thing is a choice not to do something else. Transaction Costs – time, shipping and other charges, search costs. Because of transaction costs, not all trades will take place. The Property Rights are (1) right to exclusive use, (2) legal protection against invasion, and (3) right to transfer, sell, exchange, or mortgage the property. Corporative Advantage is the ability of an individual or nation to produce a good or service at a lower relative price than another individual or a nation, while Absolute Advantage is the ability to produce more of both goods with the same resources. The Law of Demand – the price of a good or service is inversely related to Quantity Demanded. Demand is the amount of a good or service consumers will buy at different prices, while quantity demanded is the amount of a good or service consumers will buy at one specific price. The Law of Supply s ↑. When P↓, Q s ↓. Supply is the amount of a good or service a producer is willing to supply at all prices, while quantity supplied is the amount of a good or service a producer will supply at a given price.
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Price Ceiling – maximum prices set by the government. Price Floor – minimum prices set by government. A normal good’s demand increases when income increases, while an inferior good’s demand decreases when income increases. A substitute is a good used instead of some other good, while complement goods are goods used together. Economic efficiency is when people engage in activities that give them more benefit than cost and when people do not engage in activities that cost them more than they benefit. Negative Externality
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This note was uploaded on 04/29/2008 for the course ECON 2020 taught by Professor Finck during the Spring '07 term at Auburn University.

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Economics Final Study Guide - Economics Final Study Guide...

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