How to prepare for the first exam? (Chapters 1, 2, 3) 1. Learnunderstandapply the definitions: 1. Scarcity: limited nature of societys resources 2. Economics: the people of how people allocate their limited resources to satisfy their nearly unlimited wants; how decisions are made 3. Microeconomics: individual units that make up an economy 4. Macroeconomics: overall aspects that make up the the economy 5. Incentives: positivenegative, directindirect a. Direct incentive of doing dishes for 5 can lead to the indirect incentive to cheat or to not participate in extracurriculurs. 6. Tradeoffs: costs of decisions made because of scarcity 7. Opportunity cost: the next best choice: 1 on list of tradeoffs 8. Marginal thinking: evaluating whether the benefit of 1 more unit of something is greater than its cost 9. Positive statement: falsifiable claim: can be tested to be truefalse 10. Normative statement: opnion that cant be tested to be truefalse; argumentative, uses should 11. Ceteris paribus: isolation of one variable; process of examing a change in one variable while holding everything else constant 12. Production possibilities curve: illustrates the combination of outputs that a society can produce if all of its resources are being used efficiently 13. Absolute advantage 14. Comparative advantage 15. Consumer goods: for current consumption (ex: food, housing, clothing, entertainment) 16. Capital goods: help produce other valuable goods (ex: factories, roads, machinery) 17. Investment: using resources to make new capital 18. Market: where buyers and sellers exchange goods and establish prices 19. Law of demand: inverse relationship between price and quantity demanded 20. Demand vs quantity demanded: A change in demand is when the whole curve shifts and a change in quantity demanded is movement along the demand curve due to a change in price. Price Doesnt shift the curve.