Chapters 1-4
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| Incentives Matter | rewards and penalties motivate behavior
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| Good Institutions Align Self-Interest with the Social Interest | when markets work well, individuals pursuing their own interests also promote social interest
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| Trade-offs are Everywhere | we live in a world of scarcity and thus constantly facing choices
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| Thinking on the Margin | making choices by thinking in terms of marginal benefits (MB) and marginal costs (MC)
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| The Power of Trade | trade leads to increased production through specialization
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| The Importance of Wealth and Economic Growth | economic growth creates wealth
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| Institutions Matter | institutions are growth promoting and provide incentives to invest
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| Economic Booms and Busts Cannot Be Avoided but Can Be Moderated | government can use fiscal and monetary policy to reduce the swings in output and unemployment
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| Prices Rise When the Government Prints Too Much Money | a country's central bank regulates the supply of money. a sustained increase in the supply of money without an increase in the supply of goods, causes prices to rise
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| Central Banking is a Hard Job | "the fed" is often called to combat recessions
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| People Face Tradeoffs | principle of economic model
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| Trade-offs Involve Choices About A Little More or A Little Less | principle of economic model
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| Thinking on the Margin is Just Making Choices by Thinking In Terms of MB and MC | principle of economic model
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| Opportunity Cost is the Value of Opportunities Lost | principle of economic model
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| Comparative Advantage | can produce a good at a lower opportunity cost
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| Opportunity Cost | value of opportunities lost
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| marginal | one more or one less
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| Law of Comparative Advantage | you should specialize in producing the good for which you have the lowest OC and then trade
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| Production Possibility Frontier (PPF) | shows all the combinations of goods that a country can produce, given its productivity and supply of inputs. graphic representation of the mix of goods a person can produce
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| Benefits of Trade | creates value, allows specialization, increases productivity, allows for division of knowledge
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| Demand Curve | shows quantity demanded at any price and the maximum willingness to pay for any given quantity
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| Slope of Demand Curve | negative
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| Law of Demand | as price increases, the quantity demanded decreases
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| Consumer Surplus | difference between the maximum price a consumer is willing to pay for a certain quantity and the market price OR consumer's gain from exchange
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| Total Consumer Surplus | - area beneath the demand curve and above the price
- 1/2(b*h)
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| Income | Demand Shifter
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| Population | Demand Shifter
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| Price of Substitutes | Demand Shifter
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| Prices of Complements | Demand Shifter
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| Expectations | Demand Shifter
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| Tastes | Demand Shifters
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| Demand Shifts to the Right | at every single price, quantity demanded increases
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| Demand Shifts to the Left | at every single price, quantity demanded decreases
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| normal good | demand increases as income increases (cars)
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| inferior good | demand decreases as income decreases (ramen)
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| substitutes | goods that can be replaced for one another in consumption (coke and pepsi)
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| complements | goods that you purchase together (burritos and guacamole)
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| Supply Curve | shows the quantity supplied at different prices and the minimum price that a certain quantity will be supplied at
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| slope of supply curve | positive
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| Law of Supply | as prices rise, the quantity supplied increases
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| Producer Surplus | difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity (producer's gain from exchange)
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| Total Producer Surplus | area above the supply curve
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| Technology | Supply Shifter
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| Input Cost | Supply Shifter
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| Taxes | Supply Shifter
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| Market Supply Curve | Supply Shifter
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| Opportunity Cost | Supply Shifter
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| Equilibrium | when quantity supplied is equal to quantity demanded
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