A COM 265X Study Guide - Midterm Guide: Externality, Comparative Advantage, Market Failure
Document Summary
People face tradeoffs == efficiency vs equality. The cost of any action is measured in terms of foregone opportunities. Rational people make decisions by comparing marginal costs and marginal benefits. Markets are usually a good way of coordinating trade. Gov can potentially improve market outcomes if there is a market failure or if the market outcome is inequitable. Productivity is the ultimate source of living standards. Money growth is the ultimate source of inflation. Society faces a short run tradeoff between inflation and unemployment. Economics: study of how society manages its scarce resources. Efficiency: society is getting the most it can from its scarce resources. Equality: when prosperity is distributed uniformly among society"s members. Opportunity cost: whatever must be given up to obtain some item. Rational people: systematically + purposefully do best they can to achieve their objectives. Marginal changes: small incremental adjustment to a plan of action.
