Micro1stmidterm - Key Terms from Chapter 1: Big Tradeoff:...

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Key Terms from Chapter 1 : Big Tradeoff : the tradeoff between equality and efficiency Capital: the tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services Economic model: Economics: the social sciences that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentive to influences and reconcile those choices Entrepreneurship: the human resource that organizes labor, land, and capital Factors of Production: Land, Labor, Capital, Entrepreneurship Goods and services: the objects that people value and produce to satisfy human wants Human capital: the knowledge and skill that people obtain from education, on-the-job training, and work experience Incentive: a reward that encourages an action or penalty that discourages one Interest: Labor: the work time and work effort that people devote to producing goods and services Land: the “gifts of nature” that we use to produce goods and services Macroeconomics: the study of the performance of the national economy and the global economy. Margin: comparing the benefit with the cost Marginal benefit: the benefit that arises from an increase in an activity Marginal cost: the cost of an increase in an activity Microeconomics: the study of the choices that individuals ad businesses make, the way these choices interact in markets, and the influence of governments. Opportunity Cost: the highest valued alternative that we must give up to get something Rent: earned by land Scarcity: our inability to satisfy all our wants Self-interest: a choice that you think is best for you Social interest: an outcome that uses resources efficiently and distributes goods and services equitably among individuals Tradeoff: giving up one thing to get something else Wages: earned by labor Key Points of Chapter 1: All economic questions arise from scarcity – from the fact that wants exceed the resources available to satisfy them Economics is the social science that studies the choices that people makes as they cope with scarcity The subject divides into microeconomics and macroeconomics Two big economic questions summarize the scope of economics: o How do choices end up determining what , how , and for whom good and services are produced o When do choices made in the pursuit of self-interest also promote the social interest ? Every choice is a tradeoff – exchanging more of something for les of something else
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The classic guns-versus-butter tradeoff represents all tradeoffs All economic questions involve tradeoffs The big social tradeoff is that between equality and efficiency The highest-valued alternative forgone is the opportunity cost of what is chosen Choices are made at the margin and respond to incentives Economists distinguish between positive statements, what is, and normative statements, what ought to be To explain the economic world, Economists create and test economic
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This note was uploaded on 02/17/2011 for the course ECON 101 taught by Professor Mirza during the Fall '10 term at Loyola Chicago.

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Micro1stmidterm - Key Terms from Chapter 1: Big Tradeoff:...

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