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Goods Produces abroad and sold domestically
Example of principle 3
Making decisions that benefit you the most
Produce goods and services hire and use factors of production
Normative statement
Claim how the world ought to be
Interdependence and trade
Desirable because they allow everyone to enjoy a grater quantity and variety of goods and services
The study of how households and firms make decisions and how they interact in markets
Circular-flow diagram
Visual model of the economy that shows how dollars flite through markets among households and firms
Reasons economist disagree
Validity of alternative positive theories about how the world works Different normative values about what policy should to accomplish
Positive statements
Make a claim on how the world is... descriptive
Goods produced domestically and sold abroad
Principle 10
Society faves a short run tradeoff between inflation and unemployment
Factors of production inputs
Households Labor land and capital markets for factors of production Factors of production Firms goods and services sold Markets for goods and services Good and services bought...
Can simplify the complex world and maker it easier to understand
Rational people
People who systematically and purposely do the best they can to achieve their objectives
Principle 9
Prices rise when the government prints too much money
Market power
The ability of a single economic actor to have a substantial influence on market prices
Principle 8
A country\'s standard of living depends on its ability to produce goods and services
The impact of one person on the well being of a bystander
Two subfields of Economics
Micro and Macro
Principle 7
Government can sometimes improve market outcomes
Missing inputs
Government International trade Banking
Flow of dollars
Households Spending Markets for goods and services Revenue Firms Wages rent and profit Markets for factors of production Income....
Principle 6
Markets are usually a good way to organize economic activity
Example of principle 2
Going straight to college after high school instead of working
Marginal changes
Small incremental adjustments to the plan of action
The property of distributing economic prosperity uniformly among the members of society
Something that induces a person to act
Property rights
The ability of an individual to own and exercise control over scarce resources
2 decision makers
Firms and household
The quantity of goods and services produced from each unit of labor input
Point a
Efficient...the economy is getting all it can from its resources
Buy and consume goods and services Own and sell factors of production
Absolute advantage
The ability to produce a good using fewer inputs than another producer
The economy is producing lees than it can from its resources
Principle 3
Rational people think at the margin
Market failure
A situation in which a market left on its own fails to allocate resources efficiently
Opportunity cost
Whatever must be given up to obtain some item
Principle 1
People face tradeoffs
Principle 2
The cost of something is what you give up to get it
Production possibility frontier
Graph that shows the various combinations of output
Comparative advantage
The ability to produce a good at a lower opportunity cost than another producer
Business cycle
Fluctuation in economic activity, such as employment and production
Example of principle 1
Decision of what to buy for the house, what clothes to wear today
Principle 5
Trade can make everyone better off
An increase in the overall level of prices in the economy
The property if society getting the most it can from its resources
Point c
Inconceivable outcome due to scarce resources
Principle 4
People respond to incentives
Market economy
The decisions of a central planner are replaced by the decisions of millions of firms and households
Two simple economic diagrams
Circular flow diagram and production possibilities frontier
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