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Econ Study Guide Exam 1

Econ Study Guide Exam 1 - Econ Study Guide Exam 1 CHAPTER 1...

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Econ Study Guide Exam 1 CHAPTER 1 Adam Smith- believes that rational self interest benefits the society at large Micro- involves learning about each individual part of the puzzle; to describe the world we live in look at the parts and try to figure out how they fit together; how/why parts matter Macro- the study of the behavior of the economy as a whole, including such economy wide phenomena as changed in unemployment, the general price level, and national income; learning how to tell when the individual pieces are functioning correctly and what can be done to fix any problems Perfection- something that society values more than economists many people strive for perfection; constraints are rooted in the concept of trade-offs while the quest for perfection implies that anything less than exactly what you want won’t do Economy- the study of how people make choices- rule for deciding when to stay or move can be thought as: MB (marginal benefit) moving > MC (marginal cost) moving you should move Thinking like an economist- 1. there are no free lunches: principle that reminds you to looks at the catch, understand both the potential benefits and costs of an activity makes it easier to explain things that if we only examine the benefits (free item) 2. Decision makers choose purposefully and rationally: economists view all actions as purposeful 3. At the margin: rational premise is that the person must believe that their choice will make them better off (ex. You are at a cookout and someone offers you a second hamburger—if you are full, your choice will likely be different than if you are still hungry) 4. Considering secondary effects: a good economist examines all effects; even is there are secondary effects that do not take place as a direct consequence of one’s actions 5. Values are subjective: many different perspectives on the best way to grow the economy (positive- facts vs. normative-opinion) 6. Incentives matter: when a personal incentive from choosing an option increases, a person becomes more likely to choose that option Normative economics- analysis involving value judgments about economic policies; relates to whether things are good or bad. A statement of what ought to be. A personal opinion. “PSU is the best university in the country.” Positive economics- analysis that is strictly limited to making either purely descriptive statements or scientific predictions; for example, “35,000 undergraduates are enrolled at University Park this year.” A statement of what is. The examination of the facts alone Gift giving- when you give cash it’s never the wrong size or color and the recipient can use the money to buy exactly what they want; buying the right gift requires information gathering, 1.
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