Exam 4 Bullets - 7 principles of microeconomics o People...

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7 principles of microeconomics o People face trade offs o The cost of something is what you give up for it Opportunity cost – it refers to the cost of the forgone alternative o People make decisions at the margin o People respond to incentives o Trade can make everyone better off o Markets are usually a good way to organize economic activity Command economy – single entity making decisions Market economy - supply & demand set prices Mixed economy – market economy with government regulation o Governments can sometimes improve market outcomes Law of diminishing marginal returns – states the keeping one input fixed, as we increase the number of units of the other inputs, the marginal return to every unit of the other input declines. Economist – positive statements; Policy maker – normative statements Absolute advantage o The person who used fewer inputs in the production of a good should specialize in the production of that good
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