REVIEW TOPICS FOR FIRST EXAM

REVIEW TOPICS FOR FIRST EXAM - REVIEW TOPICS FOR FIRST EXAM...

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REVIEW TOPICS FOR FIRST EXAM Chapter 1 Scarcity Lack of enough resources to satisfy all desired uses of those resources. Economics The study of how best to allocate scarce resources among competing uses. Opportunity cost The most desired goods and services that are foregone in order to obtain something else. Factors of production Resources inputs used to produce goods and services, e.g, land, labor, capital, entrepreneurship Market mechanism/invisible hand The use of market prices and sales to signal desired outputs (or resources allocations) Laissez faire The doctrine of “leave it alone” of nonintervention by government in the market mechanism. Mixed economy An economy that uses both market and nonmarket signals to allocate goods and resources Market failure An imperfection in the market mechanism that prevents optimal outcomes. Government failure Government intervention that fails to improve economic outcomes. Macroeconomics The study of aggregate economic behavior, of the economy as a whole. Microeconomics The study of individual behavior in the economy, of the components of the larger economy. 3 basic questions economics tries to answer: What to produce o Our wants exceed our resources. o We have to decide what we want most. o We have to sacrifice less desired activities and goods. How to produce o How much we could produce depends on how many resources are available: Land – including natural resources Labor – number and skills of workers Capital – machinery, buildings, networks
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Entrepreneurship – skill in creating products, services, and processes o Deals with the production process and the quantities of labor and capital required to make the goods. For Whom to produce o how an economy’s output is distributed across members of society. It refers to how the national pie is sliced and the shares that people receive from it. This question is sometimes referred to as the distribution question. o The economic pie can be divided in several ways: The economic pie can be divided in several ways: Distribution based on productive contributions Distribution based on need Some combination of productive contributions and needs. Production possibilities schedule and curve Production possibilities – The alternative combinations of goods and services that could be produced in a given time period with all available resources and technology. Optimal mix of output
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REVIEW TOPICS FOR FIRST EXAM - REVIEW TOPICS FOR FIRST EXAM...

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