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Econ 1000 - definitions.docx

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ECON 1000
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Definitions of Econ 1000 CH1ECONOMIC Scarcity Inability to satisfy all our individualcollective wants An incentive is a reward that encourages an action or a penalty that discourages an action given the context Economics is the social science that studies the choices that individuals businesses governments and entire societies make as they cope with scarcity and the constraints context and incentives that influence and reconcile those choices Goods and servicesThe scarce things that we want and that require scarce resources to produceGoods and services are produced by using productive resources that economists call factors of production Factors of production are grouped into four categoriesLandLabourCapitalEntrepreneurship LandThe gifts of nature meaning natural resourcesLabour The work time and work effort that people devote to producing goods and services Human capital The quality of labour and depends on the knowledge and skill that people obtain from education onthejob training and work experience Capital The tools instruments machines buildings and other constructions that businesses use to produce goods and services are Entrepreneurship The drivers human resources that organize land labour and capital into efficient production In a Market Economy who gets the goods and services depends on the incomes that people earnLand earns rentLabour earns wages Capital earns interest Entrepreneurship earns profit You make choices that are in your selfinterestchoices that you think are best for you Choices that are best for society as a whole are said to be in the social interest Five topics factors forces that generate discussion and that illustrate tension between selfinterest and social interest areGlobalization The interconnectedness of economies The informationage Knowledge as key factorGlobal warming Change context of productionconsumption Natural resource depletion Costs and Environmental DamageEconomic instability Risk Uncertainty Expectations Key elements Tradeoffgiving up one thing to get something else Tradeoffs involving What arise when people choose how to spend their incomes when governments choose how to spend their tax revenues and when businesses choose what to produce Opportunity cost The highestvalued alternative that we give up to get something what we give up People make choices at the margin which means that they evaluate the consequences of making incremental changes in the use of their resources The benefit from pursuing an incremental increase in an activity is its marginal benefit The opportunity cost of pursuing an incremental increase in an activity is its marginal cost An economic model is a description of some aspect of the economic world that includes only those features that are needed for the purpose at hand CH 2Production Possibilities and Opportunity Cost The production possibilities frontier PPF is the boundary between those combinations of goods and services that can be produced and those that cannot fig 21 Preferences are a description of a persons likes and dislikes To describe preferences economists use the concepts of marginal benefit and the marginal benefit curve The marginal benefit of a good or service is the benefit received from consuming one more unit of it The marginal benefit curve shows the relationship between the marginal benefit of a good and the quantity of that good consumed Production Efficiency When we cannot produce more of any one good without giving up some other good we have achieved production efficiency We are producing at a point on the PPFAllocative Efficiency
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