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Economics:
social science concerned with the way society chooses to use or employ its scarce resources, which have alternative uses, to produce, exchange, & allocate goods & sevices for present & future consumption.
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Scarcity:
unlimited wants are greater than available resources can supply
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Scarce good:
A good is scarce if the amount available is less than the amount people would want if it were free.
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Free good:
A good is free if the amount available is greater than the amount people want at a zero price.
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Opportunity Cost:
the value or benefit that you give up by choosing one alternative over another
What did you give up?
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Scientific Method:
- a process of formulating theories, collecting data, testing, & then revising/or tentatively confirming your theories using two mental processes:
- induction
- deduction
- verification
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Induction:
- process of reasoning from particular observations to general conclusions, leads to a theory or model
- "theory"
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Deduction:
- process of reasoning from general statements to particular observations
- then try to verify conclusion by going back to facts
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Positive Economics:
- "what is"
- i.e. theories, facts
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Normative Economics:
- "what ought to be"
- usually the part of economics that focuses on policy
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Circular Flow:
"invisible hand"
- Firms - produce goods & services, sell to
- Households - determine factors of production, circles back to firms
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3 fundamental economic questions:
What goods & services should society produce?
How shall it be produced? How should the resources be organized for production?
For whom shall the goods be produced? Who gets it?
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Factors of Production:
Land - all natural resources
Labor - mental & physical work that people contribute to production
Capital - produced means of further production
Entrepreneur - the factor that organizes the other factors
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Capital:
an economic resource which is used to facilitate the production of consumer goods & services as well as capital goods
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Production Possibilities:
Five assumptions:
1. A choice is made between producing two goods.
2. Resources are fully employed & in the most efficient way.
3. The supply of resources is fixed.
4. Technology is fixed.
5. The same resources can be used to produce both goods.
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Production Possibilites Curve:
illustrates the difference between production efficiency & allocative efficiency
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Fallacy of Composition:
you assume that what is true or characteristic of the parts of a whole is also true of the whole in its entirety
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Fallacy of False Cause:
you assume that because two events occur together, one event has caused the other. Correlation is not causation.
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