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Mizzou ECONOM 1051 - The Key Economic Ideas
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REL_ST 1st Edition Lecture 4 Outline of Last Lecture I. Production Possibilities Frontier II. Examples III. Determining Opportunity Cost Outline of Current Lecture I. Important TermsII. Three Key Economic Ideas III. Trading Advantage IV. Efficiency and Equity Current LectureI. Important Terms a. Scarcity i. The situation in which unlimited wants exceed the limited resources available to fulfill those wants b. Economicsi. The study of choices people make to attain their goals, given their scarce resources c. Economic Model i. A simplified version of reality used to analyze real-world economic situations II. Three Key Economic Ideas a. People are rational b. People respond to incentives i. Example used in class: safe style commercial that offered a buy one get one free deal c. Optimal decisions are made at the margini. Marginal analysis involves comparing benefits and marginal costs These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.ii. An activity should be continued to the point where the marginal benefit isequal to the marginal cost III. Trading Advantage a. Comparative Advantagei. Ability of a firm or individual to produce goods or services at a lower opportunity cost than other firms or individuals. ii. Allows goods and services to be sold at a lower price than its competitors and realize stronger sales marginsb. Absolute Advantage i. Ability of a firm, individual or a country to produce more of a good or service than competitors using the same amount of resources IV. Efficiency and Equity a. Productive Efficiency i. The situation in which a good or service is produced at the lowest possible cost b. Allocative Efficiency i. A state of the economy in which production is in accordance with consumer preferencesii. Every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing itc. Equity i. The fair distribution of economic benefits d. Voluntary Exchange i. The situation that occurs in markets when both the buyer and the seller of a product are made better off by the


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Mizzou ECONOM 1051 - The Key Economic Ideas

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