ECON EXAM 1 STUDY GUIDE.docx - ECON EXAM 1 STUDY GUIDE 3...

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ECON EXAM 1 STUDY GUIDE 3 Key economic ideas 1. People are rational. [use all available information to achieve goals/objectives] 2. People respond to incentives. 3. Optimal decisions are made in the margin. [marginal = incremental] What is the economic problem that every society must solve? Scarcity- a situation in which unlimited wants exceed limited resources Economic models Centrally-planned o Government determines “what, how, who” Free-market economy o Consumer & producers interact unimpeded. Positive analysis: describes “what is” Normative analysis: describes “what should be” Production possibilities frontier Shows the maximum attainable combinations of two products that may be purchased with available resources and technology. (idea of scarcity) Y X Increasing marginal opportunity cost- the change in value to the price of something Y X
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Economic growth - produce more of both goods. (% increase the same for both goods) - slope stays the same.
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  • Fall '17
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