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CHAPTER 2 : THINKING LIKE AN ECONOMIST - Coggle Diagram
CHAPTER 2 : THINKING LIKE AN ECONOMIST
Economics
Microeconomics
(specific sector)
Macroeconomics
(economic as a whole)
Statements
Normative
focuses on the value of economics fainess, or what the economy "should be" or "ought to be".
Positive
economics analysis based on facts and statistical data.
Economic surplus
benefit of taking that action minus its costs
Economic system
Free market
Planned Economy
Mixed Economy
Opportunity costs
The next best alternative
Principles
Scarcity principle
because of scarcity, people normally face trade-offs
Cost-benefit principle
Benefit
The largest money amount, the person would be willing to pay in order to take the action.
Cost
If the money value of everything, the person must giveup in order to take action
Economics models
The circular flow diagram
Production Possibility Frontier (PPF)
Opportunity costs
Economy growth
Trade-off
Inefficiency
Efficiency
Scarcity
4 Important on decision making.
Measuring costs & benefits as proportions rather than absolute money
Ignoring opportunity costs
Failure to understand the average - marginal distinction
Average benefit
(AB)
Average cost
(AC)
Marginal benefit
(MB)
Marginal cost
(MC)
Failure to ignore sunk costs