Week 1 - Intro Flashcards
Type II error
Cost in pain, suffering, and death bc of delayed into of safe drug ie Septra Underestimated by public
Type I Error
Approval of a drug that should not have been approved ie thalidomide
Marginal benefit
Additional benefits associated with one more unit of a good or service
Marginal cost
Changes in total cost due to a change in one unit of a good or service
Economics
How people allocate scarce resources given their unlimited wants - dismal science
Self-interest
Anything individuals value including the well-being of others, friends, love, power, art, money
Model
Simplified representation of reality Useful if predictions are supported by real-world examples All have unrealistic assumptions
Behavioral economics - Three unrealistic assumptions
Unbounded selfishness - people interested in own satisfaction Unbounded willpower - choices consistent with long term Unbounded rationality - people consider all relevant choices
Factors of production
Land Labor Physical capital - factories / equipment Human capital - education / training Entrepreneurship - organizes, manages, risk
Cost-benefit analysis
Positive analysis of net benefits implies society should choose the policy that maximizes net benefits B>C*P(loss) If benefits exceed expected cost
Free good
We can extract and consume as much ad we want, until depleted - then becomes economic good and scarce
Scarcity
Cannot satisfy all wants simultaneously Not a temporary condition - fact of life Can be created by govt
Opportunity cost
Value of the next-best alternative Value of what is given up Highest ranked one, not all alternatives Cost is always a forgone opportunity
Production possibility curve (PPC)
All possible combinations of maximum outputs that could be produced assuming a fixed amount of productive inputs Curve Points inside are underutilized Points outside are impossible
Assumptions about trade-offs
Resources are fully employed Production takes place over a specific time Resource inputs after fixed Technology does not change
Law of increasing relative cost
Opportunity cost of producing a good increases as society produces more of it Bc resources are not perfectly adaptable Could be better used elsewhere
Economic growth
Capital goods increase ability to consume resources Trade-off bw consumption and capital goods Societies that reduce consumption today and invest in capital have more economic growth
Comparative advantage
Ability to produce a good or service at a lower opportunity cost
Absolute advantage
Ability to produce more units of a good or service using a given quantity of labor or resource inputs
Economically efficient level of safety (pollution)
MC = MB
