Study Guide for Exam 2...So Far

Study Guide for Exam 2...So Far - Econ 2023 Study Guide For...

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Econ 2023 Study Guide For Exam 2…So Far Chapter 1 Know that Economics is the study of how we make choices under scarcity Understand the concept of scarcity Know the difference between the different kinds of resources that we use to produce economic goods Know the 8 guideposts to economic thinking: 1. Resources are scarce, so decision makers must make tradeoffs (Know the concept of opportunity cost) 2. Individuals are rational: They try to get the most from their limited resources 3. Incentives matter 4. Individuals make decisions at the margin 5. Information helps us make better choices but is costly 6. Beware of secondary effects 7. The value of a good or service is subjective 8. The test of a theory is its ability to predict Know the difference between positive and normative economic statements: positive economic statements are testable, normative economic statements are not. Know the four pitfalls to avoid in economic thinking: 1. Violation of the ceteris paribus principle 2. The belief that good intentions equal desirable outcomes The Nirvana Fallacy: The logical error of comparing the actual situation with its idealized counterpart rather than the actual alternative. 3. The belief that association is causation 4. The fallacy of composition Chapter 2 Understand how voluntary trade creates value and leads to economic progress (The Candy Game!) Know what transaction costs are and understand the importance of middlemen Know the characteristics and 4 incentives of private property rights. Understand the concept of the Production Possibilities Curve (PPC): The PPC outlines all possible combinations of total output that could be produced, assuming a: 1. fixed amount of productive resources 2. given amount of technical knowledge 3. full and efficient use of resources Be able to read a production possibilities curve and identify efficient, inefficient, and unattainable points, as well as what is produced at each point and what is given up and gained from moving from one point to another.
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