Econ 201 Book 1

Powerful Essays
ELEMENTS OF ECONOMICS (3RD EDITION) BOOK I. Compiled by J. Linn

1
Economics is the study of allocation of scarce resources among wants that exceed those resources
2
A good is scarce if the amount demanded exceeds the amount supplied at a zero price.
3
Resources are inputs used to produce goods and services.
4
Human rational self-interest is assumed.
5
Economics is a science, and employs the scientific method.
6
Theory is a set of testable hypotheses that explain observed facts.
7
The ceteris paribus condition is violated if background causes change when a hypothesis is being tested.
8
The fallacy of composition occurs when what holds for an individual acting independently is inferred to the aggregate, or vice versa
9
Positive statements are statements of fact with no value judgments.
10
Normative statements have value judgments.
11
Causation can be inferred from correlation, but more than one causal hypothesis may be consistent with the facts.
12
Resources are of four kinds:� land, labor, capital, entrepreneurship.
13
Skilled labor is also known as human capital.
14
Scarcity implies opportunity cost.
15
Opportunity cost is the highest-valued alternative given up when an allocating decision is made.
16
Marginal benefits and marginal costs refer to decisions made one step at a time.
17
The rule of rational choice is that an action should be taken if its marginal benefit exceeds its marginal cost.
18
An optimum exists only when marginal benefit equals marginal cost for all possible actions.
19
An optimum will change when incentives (marginal benefits or costs) are changed.
20
To have comparative advantage is to be able to produce something at a lower opportunity cost than someone else.
21
In a two-good world, if one producer has a comparative advantage in one good, the other producer has a comparative advantage in the other.
22
Specialization is the concentration of productive effort in goods in which the

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