econ study guide 1

econ study guide 1 - Econ 112: Study Guide Exam 1 Chapter...

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Econ 112: Study Guide Exam 1 Chapter 1: The Art and Science of Economic Analysis The Economic Problem: Scarce Resources, Unlimited Wants -A resource is scarce when it is not freely available that is, when its price exceeds zero. - Economics examines how people use their scarce resources to satisfy their unlimited wants - Resources are the inputs, or factors of production, used to produce the goods and services that people want. Goods and services are scarce because resources are scarce. - Labor is human effort, both physical and mental to produce goods and services - Capital includes all human creations used to produce goods and services - NATURAL RESOURCES: So-called gifts of nature used to produce goods and services; includes renewable and exhaustible resources - WAGES : Payment to resource owners for their labor - INTEREST : Payment to resource owners for the use of their capital - RENT : Payment to resource owners for the use of their natural resources - PROFIT : The reward for entrepreneurial ability; the revenue from sales minus the cost of resources used by the entrepreneur - GOOD : A tangible item used to satisfy human wants - SERVICE: An activity used to satisfy human wants - SCARCITY : Occurs when the amount people desire exceeds the amount available at a zero price -As resource owners, households supply labor, capital, natural resources, and entrepreneurial ability to firms, governments, and the rest of the world. Firms , governments , and the rest of the world demand the resources that households supply and then use these resources to supply the goods and services that households demand -MARKET: A set of arrangements through which buyers and sellers carry out exchange at mutually agreeable terms -PRODUCT MARKET: A market in which a good or service is bought and sold -RESOURCE MARKET: A market in which a resource is bought and sold The Art of Economic Analysis -In general, rational self-interest means that individuals try to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit. -rational decision makers will continue to acquire information as long as the additional benefit expected from that information exceeds the additional cost of gathering it -Economic choice is based on a comparison of the expected marginal benefit and the expected marginal cost of the action under consideration. Marginal means incremental, additional, or extra. Marginal refers to a change in an economic variable, a change in the status quo. - POSITIVE ECONOMIC STATEMENT: A statement that can be proved or disproved by reference to facts
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- NORMATIVE ECONOMIC STATEMENT : A statement that represents an opinion, which cannot be proved or disproved - ASSOCIATION-IS-CAUSATION FALLACY: The incorrect idea that if two variables are associated in time, one must necessarily cause the other - FALLACY OF COMPOSITION: The incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or whole
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This note was uploaded on 04/08/2008 for the course ECON 112 taught by Professor Minkler during the Spring '08 term at UConn.

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econ study guide 1 - Econ 112: Study Guide Exam 1 Chapter...

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