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1

Scarcity

Fundamental concept of economics that indicates that there is less of a good freely available than people would like.

2

Economics

The study of human behavior, with a particular focus on human decision making.

3

Rationing

Allocating a limited supply of a good or resource among people who would like to have more of it, or amongst competing uses.

4

First Guidepost of Economic thinking

The use of scarce resources is costly, so decision makers must make trade-offs (TANSTAAFL principle).

5

Second Guidepost of Economic thinking

Individuals choose purposefully-they try to get the most from their limited resources.

6

Third Guidepost of Economic thinking

Incentives matter-changes in incentives influence human choices in a predictable way. Both monetary and nonmonetary incentives matter.

7

Fourth Guidepost of Economic thinking

Individuals make decisions at the margin.

8

Fifth Guidepost of Economic thinking

Although information can help us make better choices, its acquisition is costly.

9

Sixth Guidepost of Economic thinking

Beware of the secondary effects: Economic actions often generate indirect as well
as direct effects.

10

Seventh Guidepost of Economic thinking

The value of a good or service is subjective.

11

Eighth Guidepost of Economic thinking

The test of a theory is its ability to predict.

12

Opportunity Cost

The highest valued alternative that must be sacrificed as a result of choosing an option.

13

Marginal

Term used to describe the effects of a change in the current situation. For example, a producer's marginal cost is the cost of producing an additional unit of a product, given the producer's current facility and production rate.

14

Why are the value of goods and services subjective?

Because people can value goods differently.

15

Why are incentives important?

Because consumers respond to incentives.

16

First Pitfall of Economic thinking

Violation of the Ceteris Paribus Condition can lead one to draw the wrong collusion (Ceteris paribus: a Latin term meaning ‘other things constant')

17

Second Pitfall of Economic thinking

Good Intentions Do Not Guarantee Desirable Outcomes.

18

Third Pitfall of Economic thinking

Association Is Not Causation.

19

Fourth Pitfall of Economic thinking

The Fallacy of Composition: What’s True for One Might Not Be True For All.