ECON 201 FINAL - ECON 201 FINAL Chapter ONE The optimal...

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Chapter ONE The optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost. -In a centrally planned economy most economic decisions are made by the government. In a market economy decisions are made by the consumers and firms. Most are MIXED economies where government may also play a significant role in combination with the firms and consumers in making decisions. -PRODUCTIVE EFFICIENCY- occurs when a good or service is produced at the lowest possible cost. ALLOCATIVE- is when production reflects consumer preferences. Equity is fair distribution of economic benefits. Government policymakers usually face TRADE-offs between equity and efficiency. -Economics is concerned with positive analysis, with what actually is. It deals with how the economy actually behaves. Conceptualizing and measuring the costs and benefits of different courses of action. Normative is what ought to be. Want to use tradeoffs to normatively decide what course of action should be taken. -Scarcity-unlimited wants exceed the limited resources available to fulfill those wants. -Economics is the study of how people attain their goals giver their scarce resources. -Optimal Decisions are made at the margin. MB=MC Voluntary Exchange- the situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction. -Economic Variable is something that we can measure by, that has different values, such as the wages of workers. Opportunity cost is the concepts that the highest valued alternative that must be given up to engage in a certain activity. Chapter TWO -The basis for trade is comparative advantage. If each party specializes in making the product in which it has the comparative advantage, they can arrange a trade that makes both of them better off. They will be able to obtain the product at a lower opportunity cost. -A free market is one with few government restrictions on how goods or services can be produces or sold, or how factors of production can be employed. In a command economy, the government-makes almost all the decisions. Free markets have much better track records of providing people with rising standards of living. -Private property rights are the rights of the individual firms to have the exclusive use of their property, including the right to buy or sell it. The enforcement of these rights is vital for the economy. -Production Possibilities Frontier- a curve that shows the maximum attainable combinations of two products that may be produced with available resources. They analyze trade offs of producing two goods. As the economy moves does the production frontier it experiences INCREASING marginal opportunity costs. The more resources already devoted to any activity, the smaller the payoff to devoting additional resources to that activity. **Economic Growth and GDP have a positive correlations, the ability to produce
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This note was uploaded on 03/30/2008 for the course ECON 201 taught by Professor Staff during the Spring '08 term at N.C. State.

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ECON 201 FINAL - ECON 201 FINAL Chapter ONE The optimal...

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