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31 Cards in this Set
- Front
- Back
Scarcity
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The limited nature of society's resources
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Economics
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The study of how people allocate their limited resources to satisfy their nearly unlimited wants; they study of how people make decisions
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Rationality Assumption
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People do not intentionally make decisions that would leave them worse off
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Self-Interest
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The pursuit of one's goals, does not always mean increasing one's wealth; ex: prestige, friendship, love
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Incentives
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Something that incites or tends to incite to action or greater effort, as a reward offered for increased productivity
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Positive Incentives
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Things that make you feel good; rewards
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Negative Incentives
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Punishment
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Direct Incentives
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Primary change in behavior; ex: gives $100 to work harder
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Indirect Incentives
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Secondary changes in behavior; not intended; got something you didn't want; can be good or bad changes
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Unintended Consequences
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An unplanned result, usually negative and unwanted, of an incentive; remember: Office video
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Microeconomics
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The study of decision making undertaken by individuals, or households, and firms; focuses on the individual parts of the economy
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Macroeconomics
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The study of the behavior of the economy as a whole; deals with economy-wide phenomena, aggregates or totals
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Scientific Method of Economics
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1) Construct a theory or hypothesis
2) Design experiments to test the theory 3) Collect data 4) Revise or refute the theory based on evidence |
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Positive (not meaning good) Statement
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A claim that can be tested to be true or false; can be accepted or rejected as a fact
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Normative Statement
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Statement of opinion, cannot be tested to be true or false; what "ought to be" or "should be"
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Economic Models
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Simplified versions of reality; built with some assumptions; are considered good if they predict accurately
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Ceteris Paribus
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Latin: "other things being equal"; assumption in which we examine change in one variable, but hold all other variables; allows us to isolate the effect of a single; think: dependent and independent variables
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Endogenous Factors
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Variables controlled for inside a model; ex: the design on a paper plane; independent variables we freely change in the model equations to study their effect on the dependent variable
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Exogenous Factors
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Variables that are not accounted for in a model; outside our control; something not expected
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Production
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Activity that results in the conversion of resources into products that can be used in consumption; converting input into output
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Opportunity Cost
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The highest-valued, next-best alternative that must be sacrificed to obtain something or satisfy a want; what you give up; cost-benefit analysis
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Marginal Thinking
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Evaluate whether the benefit of 1 more unit of something is greater than the cost
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Production Possibilities Curve
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Combinations of outputs that a society can produce if all of its resources are being used efficiently
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Efficient Points
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Points on the PPC
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Inefficient Points
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Points inside the PPC
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Unattainable points
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Points outside the PPC
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"Low Hanging Fruit" Principle
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Going to grab the fruit hanging from the tree before you grab from the top; when expanding production, use resources with lowest opportunity cost first
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Absolute Advantage
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One person can perform each task more effectively than the other person
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Consumer Goods
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Goods produced for current consumption; ex: soda, shorts
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Capital Goods
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Goods that help produce other valuable goods; ex: buildings, roads, machinery, etc.
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Investment
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Using resources to make new capital
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