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Keys to thinking like an economist
People are rational
People respond to Incentives
Marginal Analysis
Opportunity Analysis
Normative Economics
Imposes a value judgement “ what ought to be”
Positive Economics
Studies economic behavior without making judgement
Economic system
System in which society allocates scarce resources to satisfy its wants
The three economic questions
what goods and services will be produced
how will the goods and services be produced
Who will recieve them
Centrally Planned Economy
An economy which the government is directly or indirectly gets to decide how economic resources will be allocated
Market Economy
Mixed economy, based on households and firms interacting in markets allocate economic resources
Mixed System
An economy which most economic decisions result from interaction of buyers and sellers in markets but the government plays a significant role in allocation of resources
Slope of PPF
y / x