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ECON midterm1 - Chapter 1 10 principles of economics People...

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Chapter 1 10 principles of economics - People face tradeoffs - The cost of any action is measured in terms of foregone opportunities - Rational people make decisions by comparing marginal costs and marginal benefits - People respond to incentives - Trade can be mutually beneficial - Government can potentially improve market outcomes if there is a market failure or if the market outcome is inequitable - Productivity is the ultimate source of living standards – resources available are not as important as productivity o Living standards are higher when people are more productive - Money growth is the ultimate source of inflation o When prices go up, we see unemployment decrease in the short run - Society faces a short run tradeoff between inflation and unemployment Chapter 2 - positive vs. normative o positive statements are descriptive (an “is” statement, a fact that can be proven or falsified) o normative statements are prescriptive “ought to be” statements – we should raise taxes
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