Econ Study Guide

Econ Study Guide - Akshay Patel Ch 1 Economic Principles(on...

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Akshay Patel Ch 1 Economic Principles (on how people make choices/decisions and how people interact; role of markets; role of government; market efficiency and market failures) Economy Production Consumption Savings Invisible Hand (of Adam Smith) and efficiency of the market Refers to the way in which the individual pursuit of self-interest Micro (individual unit) vs Macro (economy as a whole) economics Microeconomics is the branch of economics that studies how people make decisions and how these decisions interact Manufacturing The economy: socialism vs. capitalism Business cycles (economic fluctuations: ups and downs of economic activities - expansion and recession; inflation and unemployment) Ch 2 Economic models and their usefulness in explaining economic principles Assumptions behind an economic model (prototype/framework of analysis) Model 1 PPF (Production Possibilities Frontier) Efficiency vs inefficiency attainable (feasible) vs unattainable (not feasible) productions sets Choices and Options available to individuals in an economy based on available (limited) resources and given technology (state of the art) Production Possibilities Frontier Foreign economies given its resource and technology
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Refers to the outermost boundary with the most efficient production if you’re within the frontier then inefficient To get something you must sacrifice something Graph: good x axis, good y axis Y=f(x) f’(x) = slope dy/dx Absolute value of Slope of PPF is opportunity cost Can be constant, convex(decreasing), concave(increasing) Movement along a PPF and shift of a PPF Model 2 Comparative Advantage and Gains from Trade (Trade between 2 individuals or 2 countries is mutually beneficial); Absolute advantage Each individual (country) specializes according to absolute or comparative advantage and then engage in trade to increase his/her/its economic welfare. Two countries have opportunity to trade with each other, two countries through trade can both gain mutually beneficial.
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