ECO 105 Chapter Notes - Chapter 1: Marginal Utility, Marginal Cost, Opportunity Cost

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13 Jan 2017

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Scarcity: means that society has limited resources and therefore cannot produce all the goods and services people wish to have. Economics: is the study of how society manages its scarce resources. Efficiency (size): is the property of society getting the most it can from its scarce resources. Equality: (quantity divided) means that those benefits are distributed uniformly among society"s members. Opportunity cost: what must be given up to obtain something else. Rational people: people who systematically and purposefully do the best they can to achieve their objectives. Marginal change: a small incremental adjustment to a plan of action. Market economy: an economy that allocates resources through the decentralized. Incentive: is something that induces a person to act decisions of many firms and households as they interact in markets for goods and services. Property rights: the ability of an individual to own and exercise control over scarce resources.

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1. Scarcity in economics means: we do not have sufficient resources to produce all the goods and services we want. the wants of people are limited. there must be poor people in rich countries. shortages exist in nearly all markets. You like to read Vogue and Sports Illustrated. You have only $5 to spend, so you only buy Sports Illustrated. The statement that best represents this economic concept is: resources are scarce. the real cost of something is what you must give up to get it. positive economics explains how the economy actually works. economic models are used to answer âwhat ifâ questions. . If the state government allocates additional spending on education, the opportunity cost is: zero. the dollar amount of the additional spending. considered only if additional taxes need to be raised to fund the spending. measured in terms of the best alternative use for that money. For a student that owns his or her own home and doesn't plan to live in the dorm the cost of going to college is: tuition and the cost of housing. tuition, the cost of housing, and the cost of books. tuition, the cost of books, and forgone income. forgone income only. Keynesian economics stressed: the importance of total spending. the self-correcting power of free markets. the long run. that the Depression should run its course to bring down the high cost of living. The economic policy that uses changes in government spending and taxes to affect the overall spending in the economy is known as: a tax-and-spend policy. monetary policy. fiscal policy. free-trade policy. When building a model, economists: simplify reality in order to highlight what really matters. attempt to duplicate reality in all of its complexity. ignore the facts and instead try to determine what the facts should be. are careful to avoid the scientific method. Which is a normative statement? The minimum wage has not kept pace with inflation. The minimum wage is an important tool in fighting poverty and should be increased. The minimum wage can create higher unemployment for teens and unskilled workers. A higher minimum wage is expected to increase the price of a fast-food cheeseburger. Which is an example of a positive statement? The poverty rate should be 4%. A high rate of economic growth is a more important economic goal than a low rate of unemployment. The federal government pays for 46% of U.S. health care costs. Everyone in the country should be covered by national health insurance. Economists may disagree about policies because they: may approach the issue using the same sets of values. may use different economic models. enjoy disagreeing with each other. only consider issues in positive economics.

ECO 105 Chapter Notes - Chapter 1: Marginal Utility, Marginal Cost, Opportunity Cost

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