ECO Chapter 1, 2, 3

Term Definition
Five Foundations of Economics incentives, trade offs, opportunity cost, marginal thinking, and the principle that trade creates value
Incentives factors that motivate you to act or exert effort
POSITIVE Incentives encourage actions by offering rewards/paymentsEX: end-of-year bonuses motivate employees to work hard throughout the year, higher oil prices cause suppliers to extract more oil, and tax rebates encourage citizens to spend more money.
NEGATIVE Incentives discourage actions by providing undesirable consequences/punishmentsEX: the fear of receiving a speeding ticket keeps motorists from driving too fast, higher oil prices might spur some consumers to use less oil.
Conventional Wisdom "Learning is its own reward"
For positive Incentives to work… they generally need to be coupled with negative incentives
DIRECT Incentives easy to recognize
INDIRECT Incentives more difficult to recognize
Incentives also play a role in innovation
Financial gain plays a prominent role in incentives
Incentives… MATTER, KEY to understanding economics
Scarcity each, and every decision incurs a cost. Even time
Thinking about trade-offs means that we will make more informed decisions about how to utilize our scarce resources
Scarcity leads to trade-offs doing one thing often means that you will not have the time, resources, or energy to do something else
Scarcity is the limited nature of society's resources
Economics the study of how individuals and societies allocate their limited resources to satisfy their nearly unlimited wantsWATER AND DIAMONDS ARE SCARCE
Study of economics is divided into two sub fields Microeconomics and Macroeconomics
MICROeconomics the study of the individual units that makeup the economy ex: households and buildings
MACROeconomics the study of the overall aspects and workings of an economy such as inflation, growth, employment, and the productivity of economy as a whole.
Trade offs choosing one thing means giving up something else
Opportunity Costs (next best alternative) highest valued alternative that must be sacrificed to get something else
Economic Thinking involves a purposeful evaluation of the available opportunities to make the best decision possible
Economists use marginal analysis to break down decisions into smaller parts
Marginal Analysis doing more or less of something
Marginal Thinking evaluate whether the benefit of one more unit of something is greater than its cost
Bazaars weekly markets
Markets bring buyers together to exchange goods and services ex;ebay, craiglist
circular flow shows how resources and final goods and services flow through the economy
two groups in circular flow that want to trade with each other households and firms
households are the consumers
firms are businesses
two markets in the circular flow product market; resource market
Product market households are the buyers, firms are the sellers. I am the household when i go to the mall. the mall is the seller
Resource market reversed of product market. I sell myself when going to an interview. Firms are buying labor
Barter involves individuals trading a good or service they already have in exchange for something they want
Barter requires a double coincidence of wants each party in an exchange transaction has what the other party desires
Trade voluntary exchange of goods and services between two or more parties
Comparative ad 2vantage

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