Tips on getting an A:1) Recopy these notes in word. (Mr. Corey recommended this study strategy to us at the beginningof the year. I did this myself last semester and it definitely works if you do this without distractions. I highly recommend doing this. Don’t get intimidated by how many pages there are.Just focus and start copying. If you focus it won’t take as long as you might think. It’s just copying after all.)2) Review the online quizzes we’ve done so far3) Review the activities we’ve done so far.Chapters 1, 2, 3, and 6Economics is the study of how we make choices under scarcity1) Choice is the act of selecting among alternatives2) Scarcity is the concept that there is less of good freely available from nature than people would likeEx of scarcity: time, money, cars, etc.Scarcity does not equal poverty.Scarcity necessitates rationing.A) Rationing is the allocating of scarce goods to those who want themB) In a market economy, price is used to ration goodsC) Scarcity leads to competitive behaviorResources are an input used to produce an economic good.The 3 types of resources are:1) Human resources (human capital)2) Physical resources (physical capital)3) Natural resourcesCapital is Human made resources used to produce goods and servicesEconomic Way of Thinking-things are not always as they appear1) Resources are scarce so decision makers must make trade offs2) Individuals are rational: they try to get the most out of their limited resources3) Incentives matter: choices are influenced predictably by changing the incentives4) Individuals make decisions at the marginCost-benefit analysis: one will undergo an action when the marginal benefits outweigh the marginal costs5) Information helps us make better choices but is costly6) Beware of secondary effects: economic actions generate both direct and indirect effectsSecondary effect: indirect effect that might not be easily and immediately observable7) The value of a good or service is subjective8) The test of a theory is its ability to predictPositive economics is the scientific study of what is testableNormative economics are judgments about what ought to be4 pitfalls to avoid in economic thinking1) Violation of other things constant (ceteris paribus) principle2) The belief that good intentions guarantee desirable outcomesThe nirvana fallacy is the act of comparing the actual situation with its idealized counterpart rather than the actual alternative3) The belief that association is causation4) Believing that what is true for one is true for allMicroeconomics focuses on how human behavior affects the conduct of affairs within individually defined units such as households or firms (the trees)Macroeconomics focuses on how human behavior affects outcomes in huge areas like markets or nations (the forest)Tools of the EconomistCoercion is when someone devotes resources to force you into doing something by making you worse off I you don’t complyVoluntary trade creates value as with the candy game since the value of goods is subjective1) When individuals engage in voluntary exchange both parties are made better off2) By channeling goods and resources to those who value them most, trade increases the value created by society’s resourcesHow trade leads to economic progress:1) Gains from specialization and division of labor2) Gains from mass production method3) Gains from innovationCreation of wealth is the process by which when some people become rich it will make everybody richeras long as it’s through voluntary tradeTransactions Costs are time, effort and other resources needed to set up and complete a trade exchangeA middleman is a person who buys and sells goods or services and arranges trades. They reduce transaction costsThe importance of property rightsPrivate property rights include:1) The right to exclusive use of said property2) Protections against invasion from other individuals3) The right to sell, transfer, exchange or mortgage the propertyThe 4 incentives of property rights are:1) Incentive to use resources in ways that are beneficial to others2) Private owners have more incentive to care for and manage what they own3) Private owners have incentive to conserve for the future4) Private owners have incentive to make sure their property doesn’t damage your propertyA direct correlation has been shown between property rights and economic resourcesThe Production Possibilities Curve or PPC, outlines all possible combinations of total output that could be produced assuming:1) Fixed amount of productive resources2) Given amount of technical knowledge3) Full and efficient use of resourcesThe slope of the curve in the PPC indicates the amount of one good that must be given up to produce more of another goodA PPC is bowed outward because of the concept of increasing opportunity cost4 factors that affect the PPC are1) A change in the economic resource baseInvestment in the purchase, construction or development of resources2) Changes in technology3) Changes in work habits4) A change in the rules under which the economy functionsThe Law of Comparative Advantage States that the total output of a group of individuals will be greatest when the output of each good is produced by whoever has the lowest opportunity costEvery economy faces 3 questions:1) What will be produced?2) How will it be produced?3) Who is it being produced for?Socialism is a system of organization where:1) Ownership and control of the means of production rest with the state2) Resource allocation is determined by centralized planningCollective decision making is the method of organization that relies on public sector decision makingCapitalism is a system of organization where 1) Productive resources are owned privately2) Goods and resources are allocated through pricesMarket organization is when private parties make their own plans and decisions with the guidance of market pricesCapitalism tends to work because it uses the idea of market efficiency. It’s similar to natural selection.Socialism tends to suffer from an information problem since a small group of people would have trouble knowing what a large group of people wants and what their individual needs are. However, these individuals are aware of their own needs.The Law of Demand states that there is an inverse relationship between the price of a good and the quantity that they are willing to purchaseThe height of the demand curve is the maximum price consumers are willing to pay for one more
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