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Chapter one and three - Econ200 A: B: 1 C:P

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Econ 200 Chapter 1- What is Economics  Chapter 3- How people make decisions  A: People have to face trade-offs  Scarcity- people have limited resources but unlimited wants  B: Peoples decisions have costs 1. Monetary or Non-monetary  Opportunity costs- the value of the next best forgone opportunity  C: People respond to incentives  Freakonomics   D: People make decisions at the margin  how much do I beneft from the next additional unit  Marginal Benefit VS Marginal Costs  How people interact? A: People create economic systems or intuitions to help achieve objectives  Markets  B: People gain when they trade voluntarily  Invisible hand- Adam Smith (best possible outcome- efficiency ) C: Sometimes governments can improve on market allocations  How the economy as a whole works A: Country’s standard of living depends on its ability to produce goods and  services  Productivity  B: Prices rise when govt prints too much money, inflation C: We face a trade off between inflation and unemployment    Normative- the way things ought to be  Positive- observation about the way things are PPF Its curved because it is the law of increasing opportunity costs, the opportunity  cost of a good is increase as the quantity rises.
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Fixed technology Fixed resources Full employment  Movement along PPF- implies a change in production or the change in the  allocation of resources for production  Opportunity Cost How much we give up compared to how much we gain How much of one good you give up/ how much of good you gain  1. which good? We’ll consider both
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