Econ 2201 Exam 1
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What is Scarcity?
a situation in which unlimited wants exceed the limited resources available to fulfill those wants
the study of the choices people make to attain their goals given their scarce resources
Define Economic model
A simplified version of reality used to analyze real-world economic situations
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together
What are the 3 key economic principles
- People are rational
- People respond to economic incentives
- Optimal decisions are made at margin
Define Marginal analysis
analysis that involves comparing marginal benefits and marginal costs
the idea that because of scarcity, producing more of one good or service means producing less of another good or service
Define Opportunity cost
the highest valued alternative that must be given up to engage in an activity
What determines what goods will be produced?
Supply and demand
What determines how these goods and services are produced?
Who will recive these goods and services
Those who are both willing and able to pay
Define centrally planned economy
an economy in which the government decides how economic resources will be allocated.
Define Market economy
An economy in which the decisions of households and firms interacting in markets allocate economic resources
Define mixed economy
An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in allocation of resources
Define productive efficiency
A situation in which a good or service is produced at the lowest possible cost
define allocative effiency
a state of the economy in which production is in accordance with consumer preferences; in particular, every good or services is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it (competition)
Define voluntary exchange
A situation that occurs in markets when both the buyer ans the seller of a product are made better off by the transaction
the fair distribution of economic benifits
How is an economic model made?
- 1. Decide on the assumptions to use in developing the model
- 2. Formulate a testable hypothesis
- 3. Use economic data to test hypothesis
- 4. Revise the model of it fails to explain your economic data well
- 5. Retain the revised model to help answer similar economic concepts in the future.
What is the role of assumptions in economic models?
To simplify things.
Define Economic variable
Something measurable that can have different values, such as the income of doctors
Define positive analysis
Analysis concered with what is
Define Normative analysis
Analysis concerned with what ought to be
the study of how households and firms make choices, how they interact with markets, and how the government, attempts to influence their choices.
The study of economy as a whole, including topics such as inflation, unemployment, and economic growth
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