Book notes econ - Book notes Chapter 1 Outsourcing moving...

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Book notes Chapter 1 Outsourcing: moving production of goods and services outside of home country Scarcity: the situation in which unlimited wants exceed the limited resources available to fulfill those wants Economics: the study of the choices people make to attain their goals, given their scarce resources Economic model: a simplified version of reality used to analyze real-world economic situations Market: group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade Assume people are rational: weigh benefits and costs of each action and choose an action only if the benefits outweigh the costs Human beings respond to economic incentives: Economists reason that the optimal decision is to continue any activity up to the point where the marginal benefit equals the marginal cost Marginal analysis: comparing marginal benefits and marginal costs Trade off: the idea that because of scarcity, producing more of one good or service means producing less of another good or service Opportunity cost: the highest valued alternative that must be given up to engage in an activity Centrally planned economy: government decides how economic resources will be allocated Market economy: decisions of households and firms interacting in markets allocate economic resources Mixed economy: an economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources Productive efficiency: the situation in which a good or service is produced at the lowest possible cost Allocative efficiency: A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it Voluntary exchange: the situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction Equity: the fair distribution of economic benefits Often tradeoff between efficiency and equity Economists use models to analyze real-world issues To develop model use steps: Decide on the assumptions to be used in developing the model Formulate a testable hypothesis
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Use economic data to test the hypothesis
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