Study Guide for Final 2

Study Guide for Final 2 - Background and Micro Issues 1 )...

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Background and Micro Issues 1) How do economists measure the value of anything? 2) What determines the price and quantity of any good or service? Demand and supply 3) What is opportunity cost and why is there no free lunch? Opportunity cost—the value of the best alternative use of an economics good. Opportunity cost is particularly useful for valuing nonmarketed goods such as environmental health and safety There is no free lunch because with everything you buy or do, there is something else that you could have do or bought and that it what you are ultimately loosing 4) What does the invisible hand mean? Concept introduced by Adam Smith in 1776 to describe the paradox of a laissez faire market economy. The invisible hand doctrine holds that with each participant pursuing his or her own private interest, a market system nevertheless works to the benefit of all as though a benevolent invisible hand were directing the whole process. 5) What are the three questions answered by any economics system and how are they answered under a market based system? Demand Micro- what, how, who, role of prices Macro- how much to produce, GDP, CPI Determines exchange rate- supply/ demand 6) What is the difference between capitalism, socialism, and communism? Capitalism—an economics system in which most property is privately owned. In such an economy, private markets are the primary vehicles used to allocate resources and generate incomes Socialism- a political theory which holds that all (or almost all) the means of production, other than labor, should be owned by the community. This allows the return on capital to be shared more equally than under capital. Communism- a communist economic system is one in which the state owns and control the means of production, particularly industrial capital. Such economies are also characterized by extensive central planning, with the state setting many prices. 7) What is the definition of Microeconomics? Macroeconomics? Economics? Macroeconomics- analysis dealing with the behavior of the economy as a whole with respect to output, income, the price level, foreign trade, unemployment, and other aggregate economic variables
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Microeconomics- analysis dealing with the behaviors of individual elements in an economy – such as the determination of the price of a single product or the behavior of a single consumer of business firm Economics- the study of how societies use scarce resources to produce valuable commodities and distribute them among different people Circular Flow, National Income Accounting and Other Measurements 1) 2 important points of the circular flow model The diagram provides an overview of how consumers and producers interact to determine prices and quantities for both prices and outputs Increase in GDP is good more final goods in the U.S. Nominal GDP- produce more stuff and we are charging more
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This note was uploaded on 05/05/2011 for the course PSYCH 101 taught by Professor Brill during the Spring '07 term at Rutgers.

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Study Guide for Final 2 - Background and Micro Issues 1 )...

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