[ESG 126] - Final Exam Guide - Comprehensive Notes for the exam (64 pages long!)

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BU
ESG 126
FINAL EXAM
STUDY GUIDE
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Economics First Lecture (Mon, Jan 6, 2014)
10 Principles of Economics
How People Make Decisions
1. People face trade off
2. The cost of something is what you give up to get it
- Opportunity Costs
3. Rational people think of the margin
- Compare costs and benefits
- Ignore sunk cost (Forward-looking)
4. People respond to incentives
5. Trade will make everyone better off
6. Markets tend to increase efficiency
7. Sometimes the government can eliminate market inefficiencies
Second Lecture (Wed Jan 8,2014)
What is more dangerous, a gun or a swimming pool?
1. Why is economics difficult?
Translate between each different form of communication
2. Economics is a Social Science
Social = people
Science= use scientific method
3. Microeconomics vs Macroeconomics
Microeconomics: Individual households and firms and how they interact
Macroeconomics: Economy wide phenomena such as interest rates,
unemployment, money and growth
4. Efficiency vs Equity
Efficiency is the size of the pie
Equity is how the pie is divided
5. Positive vs Normative analysis
Positive: The world as it is
Normative: The world as it should be
Positive -> Come to the same conclusion
- Make observations
- Ex. The world is flat
Normative -> Value judgment (Good, bad, big, small)
- Appeals to likes and dislikes, morals
Why are principles 6 & 7 different in the book compared to lecture?
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