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Econ%102%Final:%!Chapter!1:!(Exam!1!Material)!1. Scarcity**a. People*want*more*than*what*is*freely*available*from*nature*b. Leads*to*competition*i. Ex:*Time*and*Money=Scarce/Air=*NOT*Scarce**c. **If*everyone*was*rich,*scarcity*would*still*exist*2. Microeconomics*vs.*Macroeconomics*a. Microeconomics**i. Focuses*on*individuals,*firms,*and*industries**1. Ex:*babies,*advertising,*gas*prices*b. Macroeconomics**i. Focuses*on*industries,*countries,*and*the*world*1. Ex:*national*unemployment,*inflation*rate*3. Economic*Way*of*Thinking*a. Tradeoffs*i. There’s*always*an*opportunity*cost*1. What*would*you*be*doing*otherwise**2. The*highestOvalued*alternative**b. Individuals*Choose*Purposefully*i. People*try*to*get*the*most*from*their*limited*resources*c. Incentives*Matter*i. Positive*Incentive*1. If*you*study*harder,*you*get*a*higher*grade*ii. Negative*Incentives*1. If*you*kill*someone,*you*go*to*jail*iii. Direct*Incentive*1. East*to*recognize/predictable*outcome*iv. Indirect*Incentives*1. Secondary*change/unintended*consequences*a. Ex:*Bud*Light*commercial*leads*to*more*drunk*driving*accidents*d. Individuals*Make*Decisions*at*the*Margin*i. Marginal=Additional*1. Ex:*Combo*meal*vs.*buying*burger*and*drink*separately**a. Marginal*cost*vs.*your*marginal*benefit*e. Info*is*Costly*But*Helps*us*Make*Better*Decisions*i. Ex:*Safe*Sex*ad*f. Secondary*Effects*i. The*indirect*impact*of*an*event*or*policy*may*not*be*easily*and*immediately*observable**1. Secondary*Effects*are*often*overlooked**g. Value*is*Subjective*i. Value*depends*on*the*situations*1. Different*people*have*different*favorite*colors*2. 1*point*extra*credit*opportunity*may*be*a*waste*of*time*for*one*person,*but*the*difference*between*an*A*and*a*B*for*another*h. The*Test*of*a*Theory*is*its*Ability*to*Predict*i. Want*to*determine*what*behavior*will*look*like*ii. Bad*predictions*come*from*bad*theories*i. Hold*All*Else*Equal*i. Bad*Comparison*1. Looking*at*crime*rate*in*low*income*urban*PA*vs.*looking*at*crime*in*retirement*homes*in*Ohio*ii. Good*Comparison*1. Looking*at*crime*rate*in*low*income*urban*PA*vs*crime*rate*in*low*income*urban*Ohio*2. **Only*one*thing*changed=good*comparison*j. Good*Intentions*Don’t*Guarantee*Good*Outcomes*i. Economists*care*about*results*(outcomes),*not*thought*process*k. Correlation*is*Not*Causation*i. Just*because*two*things*on*a*graph*correlate,*doesn’t*mean*one*thing*is*causing*the*other*1. Ex:*The*trend*of*housing*price*index*correlates*to*the*trend*in*the*number*of*babies*named*Ava=not*correlated,*just*a*coincidence**l. What’s*Good*for*the*Individual*isn’t*Always*Good*For*the*Group*i. A.K.A.*Fallacy%of%Composition***4. 3*Basic*Economic*Questions*a. 1.)*What*and*how*much*will*be*produced?*b. 2.)*How*will*items*be*produced?*c. 3.)*For*whom*will*it*be*produced*5. Centralized*Command*and*Control*(Central*Planning)*a. Means*of*production*owned*by*Government*b. Decides*what*items*need*to*be*produced*and*how*many*i. Ex:*King*or*queen,*dictator,*central*government*6. The*Price*System*(Market*System)*a. Alternative*to*Command*and*Control*b. Individuals*and*families*own*the*means*of*production*7. Rationality*Assumption*a. We*assume*people*won’t*make*choices*that*will*leave*them*worse*off*i. 3*Assumptions*1. Interested*only*in*personal*satisfaction*2. Decisions*are*compatible*with*longOterm*goals*3. Have*resources*to*consider*every*option*8. Bounded*Rationality*a. In*reality,*people*are*nearly*rational*b. Use*“rule*of*thumb”*instead*of*considering*all*options*i. It’s*more*convenient*9. Positive*vs.*Normative*Economics**a. Positive*i. “What*is”*ii. Fact;*can*be*proven*1. Ex:*If*gas*prices*fall,*people*will*buy*more*gas*b. Negative*i. “What*should*be”*ii. Opinion**1. Ex:*Gas*prices*are*too*low*10. “I,*Pencil”*a. Spontaneous*Order*i. Result*of*human*action,*but*not*human*design*1. Ex:*language,*market,*value*of*the*dollar*2. Ex:*Clapping*a. Organized*clapping*example*even*without*human*leader*3. Markets*are*decentralized*systems;*they*evolve*rather*than*get*created!Chapter!2:!1. 5*Types*of*Resources*a. Land*(natural*resources)*i. Location*ii. Climate*iii. Water*iv. “Gifts*of*Nature”*b. Labor*(human*resources)*i. Humans*who*work*c. Physical*Capital*i. Buildings*ii. Equipment*iii. Machines*1. Stuff*humans*make*to*help*them*make*more*d. Human*Capital*i. Accumulated*training*and*education*of*workers*1. Learning*by*doing;*internship*2. Formal*education;*college,*certificate,*programs*ii. When*workers*skills*increase,*human*capital*improves*e. Entrepreneurship**i. Formed*by*humans*ii. Creating*and*operating*a*business*2. Production*Possibilities*Curve*a. Possible*combinations*of*outputs*for*2*goods*at*a*given*time*b. Concave*with*specialization*c. Any*point*outside*curve*is*“unattainable”*d. Any*point*inside*curve*is*“inefficient”*e. Shift*in*Production*Possibilities*Curve*i. Advancement*in*technology*ii. Increase*in*economy’s*resource*base*1. How*much*of*the*resources*are*available*to*you*iii. Improvement*in*rules*governing*economy*1. Ex:*making*theft*illegal=improves*incentives*iv. Giving*up*leisure*and*working*harder*v. Giving*up*current*consumption*and*investing*more*3. Law*of*Increasing*Additional*Cost*a. When*you’re*producing*something,*it*gets*harder*and*harder*to*produce*one*more*unit*i. Ex:*producing*smartphones*over*tablets:*you*give*up*2*phones*to*produce*10*tablets,*but*eventually*you*will*have*to*give*up*22*phones*if*you*want*to*produce*60*tablet s*1. Bowed*curve***4. Comparative*Advantage*a. Whoever*has*the*lowest*opportunity*cost*i. Cost*is*what*is*given*up *ii. Trade*allows*people*to*produce*more*by*giving*up*less*b. Ex:***********Kayaks*Paddles*Jack*50*80*Jill*60*100**********************60**************50***************************************80********100*****Chapter!3!&!4:!1. *Law*of*Demand*a. The*observation*that*there*is*a*negative,*or*inverse,*relationship*between*the*price*of*any*good*or*service*and*the*quantity*demanded*b. One*variable*moves*up*in*value*while*the*other*moves*down*2. Market*Demand*Schedule*a. Shows*how*much*consumers*are*willing*and*able*to*purchase*at*a*given*price*3. Cause*Changes*in*Demand*(Entire*Curve*Shift)*a. Changes*in*consumer*income*b. Changes*in*the*number*of*consumers*in*the*market*c. Change*in*consumption*of*a*related*good*i.


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