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Scarcity Economics
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The study of how society manages its scarce resources. Refers to the limited nature of society’s resources.
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1.People face tradeoffs 2. The cost of something is what you give up to get it 3. Rational people think at the margin Decision Making
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4. People respond to incentives
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The heart of economics. Four principles of economics that deal with how people make decisions.
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Equity Efficiency
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Getting the most of scarce resources (both technically and getting the highest use). Distributing prosperity fairly among society’s members.
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Choices; Trade- offs Equity
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Increased by redistributing income from the well-off to the poor. Because of scarcity, we have (1) ; because of (1) , we have (2) .
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Opportunity Cost Opportunity Cost
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Whatever must be given up to obtain an item. The next best alternative not chosen.
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Marginal Changes Rational
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People systematically and purposefully do the best they can to achieve their objectives. Incremental adjustments to an existing plan.
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Incentive Rational
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When marginal benefit exceeds marginal cost. Something that induces a person to act (i.e. the prospect of a reward or punishment).
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Economy Rational People
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Respond to incentives. A group of people interacting with each other.
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Market 1. Trade can make everyone better off 2. Markets are usually a good way to organize economic activity 3. Governments can sometimes
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improve market outcomes
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Three principles of economics that deal with how people interact. A group of buyer and sellers of a particular product.
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Price Organize Economic Activity
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What goods to produce, how to produce them, how much of each to produce, and who gets them. Guide self-interested households and firms to make decisions that, in many cases, maximize society’s economic well-being.
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Government Price
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What the interaction between buyers and sellers determines. Enforce property rights.
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Externalities Market Failure
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to allocate society’s resources efficiently. When the production or
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Exam1 - Flashcards - The flashcards are formatted for...

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