Midterm1studyguide - Midterm 1 study guide Chapter 1...

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Midterm 1 study guide: Chapter 1 Economics:  the study of how people allocate their lmited resources to satisfy their  unlimited wants. Resources are things that have values. Wants are all of the items  people would purchase if given unlimted income.    Macro- the study of behavior of economy as a whole. ( unemployment, price  level, national income) Micro- the study of decisions making by industries and firms. Very focused.  concerned with the behavior of individual households, business firms, and  governments and how they interact with each other.For example: How do  firms choose how much to produce or what kind of products to produce is a  microeconomics question. Macro and Micro are interrelated. Macro (aggregate) outcomes depend on micro  behavior and micro (individual) behavior is affected by macro outcomes. Job of an Entropenure: invention and innovation. New ideas. Component of human  resources that performs and functions.  Cetris paribus:  the assumputions that nothing changes except the factor being  studied. Other factors remain unchanged include:  For demand: income( inferior and normal goods), tastes( a change in cosumer tastes  can shift its demand curve outward to the right or inward to the left), substitution and  complements, The price of related goods, expectations regaurding future prices and  future incomes ( can promt people to buy more or less of a good), and market size  (the number of buyers) Price is not included. For supply: costs of inputs( if input price falls, supply curve shifts right), technology  and productivity, taxes and subsidies( a per unit tax is an addition to prodction costs 
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and reduce the supply shifting the curve to the left. A per unit subsidy does the  opposite), price expectation and number of firms in the industry( more firms, more  suuply). Price is not included. Positive economics : analysis strictly limited to making either purpley descriptive  statements or scientific predictions Normative economics : analysis involving judgments about economic polcies  relates to whether things are good or bad. A statement of what ought to be. Chapter 2: Scarcity: Situation in which ingredients for producing the things that people desire  are insufficient to satisfy all wants. It is not a shortage ( quantity demanded is greater  than the quantity supplied at a price below the equalibrium) and it is not poverty.  Sarcity exists because resources are insifficent to satisfy every desire. Limited amout  of a good or service. Ex. A rich person still has limited time. Choices occur because  of scarcity.
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