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ECON 1113: EXAM 1
Murphy's Law |
What can go wrong will go wrong
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How does the government prevent going bankrupt? |
Pring more money (which will decrease the value of the dolar) and raise taxes
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Who decides your worth? |
Your employer
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Profit |
Revenue minus cost, Revenue - Cost (positive is good, negative is taking a "loss")
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Key Element 1 |
Incentives matter
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Key Element 2 |
There is no such thing as a free lunch
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Key Element 3 |
Decisions are made at the margin
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Key Element 4 |
Trade promotes economic progress
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Key Element 5 |
Transaction costs are an obstactle to trade
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Key Element 6 |
Prices bring the choices of buyers and sellers into balance
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Key Element 7 |
Profits direct businesses toward activities that increase wealth
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Key Element 8 |
People earn income by helping others
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Key Element 9 |
Production of goods and services people value, not just jobs, provides the source of high living standards
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Key Element 10 |
Economic progress comes primarily through trade, investment, better ways of doing things and sound economic institutions
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Key Element 11 |
The invisible hand of market prices directs buyers and sellers toward activities that promote general welfare
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Key Element 12 |
Too often the long-term consequences, or the secondary effects, of an action are ignored
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Economics is about |
how incentives affect the choices that shape our lives
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Decision making steps |
Compare costs versus benefits. If benefits exceed costs, do it. It costs exceed benefits, don't.
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What is affected by incentives? |
Political and market choices. Voters, politicians, consumers and producers.
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Incentives of price increases. |
Buyer purchases less, seller produces more
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Scarcity |
When our wants and needs are greater than our ability to fulfill them
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Resources are ___ while desire for goods is ___ |
Limited, infinite
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Tragedy of the commons |
If a good is provided for free, there is no incentive to conserve it
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Marginal means |
additional
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Marginalism |
to get the most out of our resources, we should only take an action when the marginal benefits are greater than the marginal costs
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Trade |
Moves goods from people who value them less to people who value them more
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Trade makes larger outputs and higher consumption possible as the result of |
specialization
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Trade makes larger outputs possible because it facilitates the use of |
mass production methods !
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Transaction costs are |
Resources spent of searching out trade partners, searching out product information, negotiating terms of trade and closing sales
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Middle man |
Someone who provides a good or a service that is available to anyone
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Transaction costs caused by |
physical objects, lack of information, political objects
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How to reach company success |
Starts with an idea, make it happen, make money, then other companies start making the same thing... leading to competition that decreases price of that good
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Do producers have an incentive to produce efficiently and keep costs low? |
Yes - higher costs lead to lower profit
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Ceteris Paribus |
There is a direct link between helping others in ways that they value and the income we earn
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Income and living standards cannot increase without an increase in |
the availability of goods that people value
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Do spending programs create jobs of value? |
They might brag about it, but no.
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Sources of economic growth: |
Investments in productive assets, improvements in technology and improvements in economic organization
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To compare size of an economy |
Use Real GDP (it takes out inflation)
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To compare countries |
Use Per Capita Real GDP (theoretical piece of the pie that everyone gets)
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Nominal GDP |
includes inflation, if you have both the nominal and the real GDP, you can determine inflation
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Opportunity cost |
What you give up
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Scarcity |
When you have to give up something...
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What can cause a production possibilities curve to move inward? |
Less labor, capitol, entrepreneurship, etc
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What can cause a production possibilities curve to move outward? |
More labor, capitol, entrepreneurship, etc
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Good market system: property rights defined, established and protected by law |
We have the rights to our own labor
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Good market system: flexible prices |
Fluctuate in response to individual's voluntary decisions and exchanges (market exchange)
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Good market system: market incentives |
Generated by a price system whose rewards and penalties motivate decision makers
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Good market system: reasonably stable prices |
With a well-functioning monetary system that facilitates voluntary exchange
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Good market system: culture with a climate of trust |
In which a well-constructed and well-enforced legal system is broadly obeyed
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How is specialization is a way to tackle scarcity? |
It allows people to become highly skilled in a specific area
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Specialization conveniences.. |
... reduces completion time, drives people to innovate and invent... causes dependence on others
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Absolute advantage |
An individual can produce a good at a lower cost than another individual or he can produce more
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Price System as Coordinator |
Demand schedule, quantity demanded, demand curve, law of demand
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Demand schedule |
Price versus quantity demanded. Numbers give you the demand curve... it's always downward sloping because of the law of deman
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What is the only thing that can move you up or down the demand curve? |
Price. ONLY.
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Law of demand states |
Price and quantity demanded have an inverse relationship (price decreases, quantity demanded increases, and vice versa)
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Change in non-price determinant of demand leads to |
A shift in demand
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Change in price of product leads to |
Change in quantity demanded and supplied
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Change in a non-price determinant of supply leads to |
A shift in supply
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Surplus |
Qs-Qd= positive number
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Shortage |
Qs-Qd= negative number
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When demand increases |
Price and quantity increase (direct), line moves to the right
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When supply decreases |
Price increases and quantity decreases (inverse), line moves to the left
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When demand decreases |
Price and quantity decrease (direct), lives moves to the left
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When supply increases |
Price decreases and quantity increases (inverse), line moves to the left
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Example of a capital resource |
A computer programmer
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Four factors of production |
Land, labor, capital, entrepreneurial ability
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