econ lesson 1

Every society faces​ trade-offs because we live in a world of scarcity. Suppose a​ student-athlete has the opportunity to earn 200,000 next year playing for a minor league baseball​ team, ​500,000 next year playing for a European professional football​ team, or​ $0 returning to college for another year.

500,000

ex of unintended consequences

Australian baby bonus SF plastic bag ban--> ecoli

Why are models based on​ assumptions?

Because models have to be simplified to be useful.

MC outweighs

MB

Productive efficiency means that

a good or service is produced at the lowest possible cost.

Scarcity is central to the study of economics because it implies that

every choice involves an opportunity cost.

patents and copyrights

guarantee profits to those who invent new products or create new art.

a. The effect of higher cigarette taxes on the quantity of cigarettes sold. b. The effect of higher income taxes on the total amount of consumer spending. c. The reasons for the economies of East Asian countries growing faster than the economies of​ sub-Saharan African countries. d. The reasons for low rates of profit in the airline industry.

micro macro macro micro

macro vs micro

micro is individ firms macro is the economy as a whole

what's an incentive pos incentive neg incentive both can lead to what?

An incentive is a factor that motivates a person to act or exert effort. • A positive incentive provides an award. • A negative incentive issues a punishment. • Both can lead to unintended consequences.

Economists use models

B. to answer questions and analyze issues.

continue anything up til the point where (this is the optimal decision)

MB=MC

A primary difference between macroeconomics and microeconomics is

Microeconomics examines individual markets while macroeconomics examines the economy as a whole

Which of the following best describes​ scarcity?

Unlimited wants exceed the limited resources available.

a mixed economy is

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 the allocation of resources.

Societies organize their economies in two main ways to answer the three questions of​ what, how, and who. A society can have a -- economy in which the government decides how economic resources will be allocated. Or a society can have a --- economy in which the decisions of households and firms interacting in markets allocate economic resources.

centrally planned market

Behavioral economics

combining economics and human behavior, challenges this assumption: that people are rational

economists assume

consumers and firms use all available information as they act to achieve their goals.

This percentage change in real GDP is also known as

economic growth rate

​Suppose, in an effort to prevent the population from​ declining, Italy begins offering new mothers extended periods of paid family leave from work​ and, consequently, the birthrate per woman increases. If​ so, then this could best be characterized as an example of people responding to

economic incentives

Allocative efficiency means that

every good or service is produced up to the point where marginal benefit is equal to marginal cost.

What do economists mean by the word​ "marginal"?

extra or additional

incentives play a key role in

innovation

economics

is the study of how people allocate their limited resources to satisfy their unlimited wants

why are diamonds more expensive than water?

its more scarce

The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a

macro

micro or macro? unemployment apple lay off firm's pricing decision gov taxing cigarettes

macro micro micro micro bc gov influencing individ firms (gov taxing is micro)

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost.

how much new machinery and equipment firms decide to​ purchase, one must analyze the incentives individual firms​ face, which is a

micro

What type of economic analysis is concerned with the way things ought to​ be?

normative analysis

3 main ideas

people are rational, they respond to economic incentives and optimal decision made at the margin

economics is about ----, which measures

positive analysis, which measures the costs and benefits of different courses of action.

mechanism that allocates scarce resources?

prices

marginal thinking

requires decision-makers to evaluate whether the benefit of one more unit of something is greater than its cost.

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls

scarcity

main idea behind economics

scarcity

A large corporation that runs nursing homes estimates that changes to Medicare will result in lower payments by Medicare to nursing homes for​ short-term stays by patients that require therapy or care upon leaving hospitals. Assume the corporation is considering expanding the number of​ "beds" it offers at its nursing homes. Given the changes to​ Medicare, if the marginal benefit of offering an additional bed is ​$3 000 and the marginal cost is ​$1 000 per​ bed, then the corporation ---- offer additional beds.

should

Economists believe that an activity should be continued up to the point where

the marginal benefit from the activity is equal to the marginal cost.

Economists assume that people are rational in the sense that

they use all available information as they take actions intended to achieve their goals.

Economic data is used

to test models

positive analysis

what IS

normative analysis

what ought to be