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Scarcity Scarcity
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Limited nature of society’s resources. Relationship between availability and desirability.
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Efficiency Equality
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Prosperity is distributed uniformly among society’s members. Society getting most from its scarce resources.
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Opportunity Cost Tradeoff
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“No such thing as a free lunch” What must be given up to obtain an item.
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Rational People Opportunity Cost
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The relevant cost for decision making. Systematically and purposefully do their best to achieve their objectives.
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Rational People Marginal Changes
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Incremental adjustments to an existing plan. Make decisions by evaluating costs and benefits of marginal changes.
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Incentive Marginal Cost; Marginal Benefit
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If ____ is less than ____, then you should do it. A change that causes one to act (i.e. prospect of an award or punishment).
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1. People face tradeoffs 2. Cost of something is what you give up to get it 3. Rational people think at the margin Rational People
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4. People respond to incentives
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Respond to incentives. Principles of economics concerning how people make decisions:
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Market Economy Market
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A group of buyers and sellers. Allocates resources through the decentralized decisions of many households and firms as they interact in markets.
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Price “Invisible Hand”
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Lead households and firms to promote general economic well- being. Determined by the interaction of buyers and sellers.
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Price Price
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Reflects the good’s value to buyers and the cost of producing the good. Guide self-interested households and firms to make decisions that, in many cases, maximize society’s well-being.
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Enforce Property Rights “Invisible Hand”
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Works through the price system. Important role for government.
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Externalities Market Failure
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When the market fails to allocate society’s resources efficiently. When production or consumption affects bystanders.
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Externalities and Market Power Market Power
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Single buyer or seller has substantial influence on market price. Causes of market failure:
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Promote Efficiency 1. Trade can make everyone better off 2. Markets are usually a good way to organize economic activity 3. Governments can sometimes improve
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market outcomes
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Principles of economics concerning how people interact: In cases of market failure, the role of public policy.
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This note was uploaded on 08/30/2011 for the course ECO 2013 taught by Professor Barbaramoore during the Spring '08 term at University of Central Florida.

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Exam1 - Flashcards - The flashcards are formatted for...

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