Econ 2023 Exam 1 Review

Econ 2023 Exam 1 Review - Econ 2023 Exam 1 Review Chapter 1...

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Econ 2023 Exam 1 Review Chapter 1 Economics is the study of how we make choices under scarcity Scarcity= the concept that there is less of a good freely available from nature than people would like. o Necessitates rationing, allocating scarce goods to those who want them. o Scarcity leads to competitive behavior Resources= an input used to produce an economic good o Human capital o Physical capital o Natural resources 8 guideposts to economic thinking: 1. Resources are scarce, so decision makers must make tradeoffs Opportunity cost: the highest valued alternative that must be sacrificed when choosing an option. 2. Individuals are rational: They try to get the most from their limited resources 3. Incentives matter 4. Individuals make decisions at the margin Marginal= the effect of a change in the current situation Cost benefit analysis= one will undergo an action when the marginal benefits outweigh the marginal costs 5. Information helps us make better choices but is costly 6. Beware of secondary effects= economic situations generate both direct and indirect effects Secondary effect: the indirect impact of an event or policy that may not be easily and immediately observable. 7. The value of a good or service is subjective 8. The test of a theory is its ability to predict Positive economic statements= are testable, the scientific study of what is Normative economic statements are not, judgments about what ought to be. Four pitfalls to avoid in economic thinking: 1. Violation of the ceteris paribus principle, other things constant 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.
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This note was uploaded on 03/25/2012 for the course ECO 2023 taught by Professor Mccaleb during the Fall '08 term at FSU.

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Econ 2023 Exam 1 Review - Econ 2023 Exam 1 Review Chapter 1...

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