Summary01 - Normative questions involve value judgments and...

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CHAPTER 1 SUMMARY: 1. Why study economics? There are four main reasons to study economics: (1) to learn a way of thinking; (2) to understand how society functions; (3) to understand global affairs; and (4) to be an informed voter. 2. What are opportunity costs and how do they differ from sunk costs? Opportunity costs are a key part of the economic way of thinking. The opportunity cost of an action is the highest valued opportunity forgone by doing the action. Sunk costs, on the other hand, are costs that have already been incurred and are, therefore, no longer relevant to a current decision. 3. What does it mean to say that there's "no free lunch?" The phrase is meant to remind us that there's an opportunity cost for everything! 4. What's the difference between positive and normative questions?
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Unformatted text preview: Normative questions involve value judgments and are often phrased as "Should we…" types of questions. Positive questions deal more with matters of fact and with the implications of policy decisions. 5. What are some logical pitfalls that often get in the way of our thinking clearly about important questions? Two common flaws in reasoning are the post hoc fallacy and the fallacy of composition. The post hoc fallacy occurs when we confuse "after" with "because." Just because one event follows another doesn't mean that the first event caused the second! The second fallacy occurs when we believe that what is true for a part of something is true for the whole....
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