Econ Ch.1 study help - Chapter One Economics The study of...

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Chapter One: Economics : The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided. The key word in this definition is choose. Economics is a behavioral, or social, science. In large measure it is the study of how ppl make choices. (four main reasons to study economics) To learn a way of thinking, to understand society, to understand global affairs, to be an informed voter. Opportunity Cost: The full “cost” of making a specific choice includes what we give up not making the alternative choice. (the best alternative we give up is Opportunity Cost) Example: Opportunity cost of morning class is sleep. Example: A)$10 (Best choice) B)$8 C)$5 D)$9 (opportunity cost) Jay can increase his production of bikes by 5 if he reduces his production of cars by 1 O.C . of bike=1 less car O.C. of car=5 less bikes Unit of O.C. of bike: 1/5 car/bike Marginalism: Weighing the costs and benefits of a decision
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Unformatted text preview: Ex: Visiting Mom in Iowa on a business trip to KC. The cost of visiting Mom is only the marginal time and money cost of getting to Iowa from KC. Sunk Cost: Cannot be avoided, regardless of what is done in the future, because they have already been incurred. Marginal cost is the cost of producing one more unit of output* Model: Formal statement of a theory, usually a mathematical statement of a presumed relationship b/w two or more variables. Variable: Measure that can change from time to time or from observation to observation Ockham’s Razor: Principle that irrelevant detail should be cut away *(All else equal: Ceteris Paribus) Common Fallacies: Post hoc ergo propter hoc Correlation vs. Causality Post – If something happens after something else it was caused because of it….Not true Correlation vs. Causality – If you go to the hospital you will die…Not True...
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