Econ Unit 1

what is the relationship between scarcity and choices?

there is scarcity because we have limited resources and unlimited wants, so we have to make choices about what to use our resources for

positive statement

a fact-based statement that avoids any judgement of values

normative statement

an opinion-based statement (what ought to be)

what is marginal analysis?

making decisions based on the additional benefit vs. the additional cost

what is the “invisible hand”?

a figurative hand that explains free market efficiency

what are tradeoffs?

the cost of making a choice

what are the 5 key economic assumptions?

society’s wants are unlimited, but ALL resources are limited; choices must be made and all choices have costs (tradeoff); everyone acts in their own self-interest; everyone compares the marginal costs and marginal benefits of every choice; real-life situations can be explained/analyzed through simplified models and graphs

what are the 7 principles of economics?

scarcity forces tradeoff, cost vs. benefits, thinking at the margin, incentives matter, trade makes people better off, future consequences count, markets coordinate trade

Adam Smith said that specialization…

was essential to efficient use of resources

what is the law of unintended consequences?

actions often have unforeseen effects