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Econ Notes Chapters 1-5 (aced the test and got 96%)

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ECON 2000
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Econ Final Exam Review Study GuideChapter 1Economics is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have providedWhy study economicsto learn a way of thinking to understand society to understand global affairs and to be an informed citizenthe best alternative that we forgo when we make a choice or a decision is the opportunity cost of that decisionThe scope of economicsmicroeconomics deals with the functioning of individual markets and industries and with the behavior of individual decisionmaking units business firms and householdsmacroeconomics looks at the economy as a wholeit deals with the economic behavior of aggregates national output national income the overall price level and the general rate of inflationeconomics is a broad and diverse discipline with many special fields of inquirythese include economic history international economics and urban economics The method of economicseconomics asks and attempts to answer two kinds of questions positive and normativepositive economics attempts to understand behavior and the operations of economies without making judgements about whether the outcomes are good or badnormative economics looks at the result of economic behavior and asks whether they are good or bad and whether they can be improvedpositive economics is often divided into two partsdescriptive economics involves the compilation of data that accurately describe economic facts and eventseconomic theory attempts to generalize and explain what is observedit involves statements of cause and effect of action and reactionan economic model is a formal statement of an economic theorymodels simplify and abstract from realityit is often used to isolate one variable on another while holding all else constantthis is the device of ceteris paribusmodels and theories can be expressed in many waysthe most common ways are in words in graphs and in equationsbecause one event happens before another the second event does not necessarily happen as a result of the firstto assume that after implies because is to commit the fallacy of post hoc ergo propter hocthe erroneous belief that what is true for a part is necessarily true for the whole is the fallacy of compositionempirical economics involves the collection and use of data to test economic theoriesin principle the best model is the one that yields most accurate predictionsto make policy one must be careful to specify criteria for making judgementsfour specific criteria are used most often in economics efficiency equity growth and stabilityOther important termsefficiency in economics allocative efficiencyan efficient economy is one that produces what people want at the least possible costefficient market a market in which profit opportunities are eliminated almost instantaneously equity fairnessIndustrial revolution the period in england during the late 18 early 19 centuries in which new manufacturing technologies and improved transpiration gave rise to the modern factory system and a massive movement of population from the countryside to the citiesmarginalism the process of analyzing the additional or incremental costs or benefits arising from a choice or decisionOckhams razor the principle that irrelevant detail should be cut awayscarce limitedstability a condition in which national output is growing steadily with low inflation and full employment of resourcessunk costs costs that cannot be avoided because they have already been incurredVariable a measure that can change from time to time or from observation to observationProblemsone scarce resource that constrains our behavior is timeeach of us has only 24 hours in a daywe must allocate our time in a given day among competing alternativeshow do you weigh the alternativeswhen you choose the most important use of your time why do you not spend all of your time on that one activityas more and more time is spent on one activity the opportunity cost of that activity in terms of others risesidentify the opportunity cost involveda worker earning an hourly wage of 850 decides to cut back to part time to attend Houston community collegeopportunity cost of workers decision is value of next best alternative he could have chosen the price of tuition which could be spent on other goods and services and the value of forgone wagestom decides to stay out all night at a wild fraternity party instead of studying for his chemistry testopportunity cost is a better grade on his chemistry teston Forbes 2010 list of the worlds billionaires Mexicos Carlos slim hurl ranks at the top with a net worth of 535 billiondoes this richest man in the world face scarcity or does scarcity only affect those with lower net worth and limited income
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