EEE Final 2023

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64 Terms

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Benefits of human beings being social animals.
* Make other people better off with you than without you
* Specialization makes it so that you don’t have to do everything on your own
* Show up with something to offer others
* Invent ways to be of service to each other
* Cooperate with others
* To see how other people do things 
* A simple idea that a better idea may be around the corner inspires others
* Cooperate for mutual benefit 
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Ethical decisions
* Every business decision is an ethical decision 
* Need integrity or being true to yourself 
* Most major decisions businesses make
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Ethics
* The subject of how people live in order for the world to be a better place with them than without them (cause and effect)
* Taking responsibility for knowing the facts 
* Knowing the law 
* Wanting people to be glad they trusted you 
* Ignorance is not an excuse 
* Find a way to succeed and deserve the success and make the world a better place 
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Trade
* value for both participants and mutual benefit 
* homo sapiens were wisest and learned to make deals with strangers
* Inventing ways to be of service to each other and cooperate
* Make customers better off and bring things to the market 
* Cooperation for mutual benefit and there are gains from it 
* Positive sum 


* Everyone can win-win win  
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Zero-sum game
* no one gains unless someone else loses like games growing up the only way to win is to make someone else lose
* Trade is not zero sum game 
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Specialization
* need this to have trade in large groups 
* division of labor and specialization 
* Each person does a different job 
* don’t have to do everything on your own 
* Important in the wealth of nations
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Property Right
* flow from our basic human equality 
* Help coordinate our activities
* Adam smith-person, property, and promises
* To have a functioning society 
* John Locke
* Allow people to choose what to do with potential resources 
* We see entrepreneurial creativity 
* Work became a contest to see who would earn the most 
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Communicate for trade
* communication from all parties 


* Communicate through what kind of prices-equilibrium precondition for voluntary exchange


* Reputation led to trading networks


* People cooperate for mutual benefit 


* Happy to be of service to each other 
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4 Factors of production
Land, labor, capital, entrepreneurship
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Opportunity Cost
* what you are giving up in a transaction-tradeoff in increasing production of something 
* When you make a choice between one item or another
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Institutions
* framework for interaction
* Laws, norms, beliefs
* What we expect out of societies behavior 
* Marriage is an institution 
* Durable frameworks for interaction and mutual expectation
* help us know what to expect from each other 
* Law is an institution 
* store of value (has value within itself), medium of exchange, unit of account (worth a specific amount)

Helps us go towards a common destination 
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Money
* store of value (has value within itself), medium of exchange, unit of account (worth a specific amount)
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Marginal cost
* cost added by producing one more unit of something 
* Marginal is adding one more of something 
* Added one more of this what is my cost going to be 


* Add one more mile onto commute what is cost going to be 
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Broken window fallacy
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* even though breaking windows may look like it is benefiting the economy, that person who has to pay to fix it is missing out on paying for some other good or service
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Adam Smith and progress
* society makes progress when its members put in time and effort into win-win games
* Live in society that gives people a reason to be peaceful and productive 
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Negative Railroad
* human prosperity stems from innovations that lower transaction costs 
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Scarcity Problem
* everything is scarce-we economize time because it is scarce-it is unavoidable 
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Production Possibilities Curve
* shows the relationship between maximum possible production outcomes given resources over a period of time 


* Negative slope 


* Tells you the opportunity cost of one good over the other
* Inside curve- inefficent or unemployed, not emplying all of their resources
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Inefficiency
* greater than equilibrium quantity or less than 
* When demand outweighs supply or when supply outweighs demand 
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Theory of Comparative Advantage
* countries benefit because of comparative advantage
* Whoever has the lower opportunity cost 
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Mercantilism
* country prospers more from exports over imports 
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Voluntary Trade
* willing to trade for mutual win-win benefit 
* Everyone is better off 
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Demand
* how much people are willing to buy over a given period of time


* As price goes up demand goes down 


* Inverse-can see it in a demand schedule 
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Supply
* willingness to sell goods at various prices 


* Direct relationship 


* As price goes up supply goes up 
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Equillibrium
* uses society’s resources in the most efficient way possible given what people want 
* Product clears the market and they come together 
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Complements
* goods and services that are consumed together 
* Changing the price of one of the goods directly affects the other 
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Substitutes
* if price of one good increases, the substitute will become more popular 


* They take the place of each other 
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Economic Surplus
* produce more than you demand 
* More supply than demand 
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High prices and incentivizing
* buy a cheaper good 
* Substitute because the other good is too expensive 


* They incentivize by making price cheaper 
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Prices
* producers and consumers coordinate their actions through this 


* Determine law of demand or law of supply
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Price Floors
* minimum price set by the government and is above equilibrium 
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Price ceilings
* maximum price
* underneath equillibrium
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Agents and Principals
* agent is working on behalf of the principle 
* Have same interest at heart 
* Commissions they make off it
* Agent is willing to work for principle if they are getting money 
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Negative Externality
* negatively impacts a 3rd party that is not involved in the transaction 


* Negative external cost
* People who are negatively affected 
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Tragedy of the commons
* deals with private property 
* Who owns what 
* Regulates our own land
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Market System
* depends on property rights
* Have to pay property taxes  
* Depends on if people own things or the factors of production 
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Positive Externality
* when something positively impacts a 3rd party bystander that is not involved in the transaction 


* External benefits 
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Patent
* provide company a temporary monopoly or intellectual property 
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Patent
* Market where there is only one seller
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Market Power
* barriers to entry impacts this 


* Entities have power over markets 
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Tariffs
* tax on imported and exported goods 


* Imported goods- decreases consumption and production
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Free Trade
* Ability to trade without limitations or tariffs 
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Minimum Wage
* example of a price floor 
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Marginal Benefit
* have to equal to produce or consume it benefit must be equal or more than cost
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Evaluation of loans by banks
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* banks use credit score to see your capacity to pay back a loan or your risk factor
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Federal Open Market Committee
* strong responsibility to increase the money supply 
* Maximize employment, control interest rates, stabalize prices 
* How can they increase money supply in our economy
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Government Bonds
* what are government bonds competing with-stock market  
* Private borrowers for money 
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Expansionary Fiscal Program
* increasing spending to prevent a recession 
* Like the new deal 
* Give people jobs and then it will ultimately allow them to pay back the money when they can pay taxes 
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Unemployment Rate
* % of people who are unemployed
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GDP
* all final goods and services in the US 


* Not produced in another place 


* This year and here
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What GDP consists of
* C+I+G+(x-m)
* Consumption
* Investments
* Gov spending 
* Exports minus imports 

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Inflation Rate and How Economists measure the Inflation Rate
* look at our price changes in our fixed basket of goods 
* Typical things that people buy 
* Look at change in prices over time 
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Budget Deficits and the National Debt
* sum of interest payments of national deficit 
* Borrowing beyond 
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High Inflation
* money loses its value when we have high inflation 


* Purchasing power goes down 
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Public Choice Theory
* people who run governments run business and households should have similar motives 
* They shouldn’t be in it only for power 
* People in governments and businesses are trying to do the same things 
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Creative Destruction
* when one industry destroys another industry through innovation 
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Positive Economic Profits
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* more people will enter the industry 
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Calculating interest
* P x R x T
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Insurance
* Risk management
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How much should you have in savings at all times
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* 6-12 months of savings of your monthly income 
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Effectuation process
* end result 


* Helps develop new companies and markets


* Use effects to figure it out  
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Entrepreneur
* someone who takes opportunities to look at the needs of others 
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Competitive Advantage
* makes goods cheaper to make for one institution over another
* Buy stuff cheaper get more profit
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Ethics economy and entrepreneurship
Ethics help with the decisions that we make. These ethics influence the way we treat others and make decisions in the economic world as well. The economy is influenced by these ethical or unethical decisions that we make. Because we live in a free market society, we influence the economy daily through investing and demanding goods. Entrepreneurship includes making ethical decisions and adding something good to the economy. When we help make people better off, we impact the economy positively as entrepreneurs.