MankiwExamIReview - Mankiw Exam I Review Chapter 1 1...

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Mankiw Exam I Review Chapter 1 1. Scarcity - Society has limited resources and therefore cannot produce all the goods and services people wish to have. 2. Opportunity Cost - whatever must be given up to obtain some item 3. Trade offs - “There ain’t no such thing as a free lunch”; often expressed as an opportunity cost, which is the most preferred possible alternative; usually involves a sacrifice that must be made to get a certain product or experience. 4. Rational consumers - assumes consumers are rational and know what they want 5. Efficiency - society getting the maximum benefits from its scarce resources 6. Equality - distributing economic prosperity uniformly among the members of society 7. Benefits of trade - all consume at a higher rate and do what we do best and trade 8. Command vs free market - a. Command - government owns resources b. Free market - people 9. Communism vs Capitalism - a. Communism - command b. Capitalism - free-market 10. Invisible Hand (Adam Smith) - government acts as an “invisible hand” with the economy with no intervention and allows households and firms to interact within the economy 11. Market failure - situation in which the market left on its own fails to allocate resources efficiently 12. Externalities
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