ECON 0110 Study Guide - Summer 2018, Comprehensive Midterm Notes - Gross Domestic Product, Fiscal Policy, Interest Rate
ECON 0110
MIDTERM EXAM
STUDY GUIDE
Fall 2018
Chapter 1
What is economics?
Every economic issue involves, at its most basic level,
individual choice. At its core, economics is the study of
individual choice.
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Individual choice
The decision by an individual of what to do, which
necessarily involves a decision of what and what not to
do
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Scarcity is the condition in which our wants are greater
than our limited resources. Economics is the science of
scarcity
We are unable to have everything we desire, so we
must make choices.
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Economics
The social science that studies the production,
distribution, and consumption of goods and services.
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Economy
A system for coordinating society's productive
activities
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Ex. Market Economy, Command Economy
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Types of Economics
Microeconomics
The branch of economics that studies how people make
decisions and how these decisions interact
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Macroeconomics
The branch of economics that is concerned with overall
ups and downs in the economy
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Positive Economics
The branch of economics analysis that describe the
economy actually works
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What is actually going on
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Normative Economics
Prescription about the way the economy should work
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What we SHOULD do
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Principles of Economics
# 1: Choices are necessary because resources are scarce.
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#2: The true cost of something is its opportunity cost.
Opportunity Cost
What you must give up in order to get something
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#3: "How much" is a decision at the margin
Some choices involve an "either-or" decision
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Other choices involve a "how much decision"
Ex. How much should you study for your exam
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Trade-Off
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Lecture 1
Monday,+May+14,+2018
10:00+AM
find more resources at oneclass.com
find more resources at oneclass.com
Trade-Off
Compare the costs and benefits of doing
something
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Margin Decision
Deciding whether to do a bit more or less of an
activity
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Marginal Analysis
The study of marginal decision
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#4: People usually respond to incentives, exploiting
opportunities to make themselves better off.
Incentive
Anything that offers rewards to people who
change their behavior
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#5: There are gains from trade.
Trade allows us to consumer more than we otherwise
would.
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Trade
Provide goods and services to others and receive
goods and services in return.
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Specialization
Each person specializes in the task that he or she
is good at performing.
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#6: Markets move toward equilibrium.
Equilibrium
When no individual would be better off doing
something else.
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Ex. People walking down the right-hand side of
the hall. There is no law stating that this is what
needs to happen. Its is a form of equilibrium.
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#7: Resources should be used efficiently to achieve society's
goals.
Inefficient
A situation where there is an opportunity to make
some people better off and no one worse off that
has not been taken
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Efficient
Taking all opportunity to make some people
better off without making other people worse off.
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Equity
A condition in which everyone gets his or her "fair
share."
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Equity & efficiency are often at odds.
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#8: Markets usually lead to efficiency.
Invisible Hand
The way in which the pursuit of self-interest can
lead to good (efficient) results for society as a
whole
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#9: When markets do not achieve efficiency, government
intervention can improve society's welfare.
Ex. Firms may not take into account the health effects
of pollution and , therefore, they pollute more than is
socially desired. Government regulation can reduce the
amount of pollution.
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find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Every economic issue involves, at its most basic level, individual choice. At its core, economics is the study of individual choice. The decision by an individual of what to do, which necessarily involves a decision of what and what not to do. Scarcity is the condition in which our wants are greater than our limited resources. We are unable to have everything we desire, so we must make choices. The social science that studies the production, distribution, and consumption of goods and services. The branch of economics that studies how people make decisions and how these decisions interact. The branch of economics that is concerned with overall ups and downs in the economy. The branch of economics analysis that describe the economy actually works. Prescription about the way the economy should work. # 1: choices are necessary because resources are scarce. #2: the true cost of something is its opportunity cost.
