First Midterm Review

• Incentives
• motivation for doing something; not only money
• Values
• subjective
• products' value dependent on consumer interest
• Specialization
• what skills people specialize in
• without this there's an information problem
• driving force for division of labor- different activities needed to produce commodities 
• some fear specialization because(giving up self-sufficiency) because your specialization is dependent on a number of others
• Feedback loop
• give consumers an incentive to come back as a result of the consumers' business as an incentive
• Price System
• scarcity determines prices
• act as signals carrying information about the scarcity of an item
• Wealth
• no set wealth in the world
• direct relationship with prices
• Costs
• marginal cost- change in cost incurred by decision
• sunk cost- cost that cannot be recovered
• richer now so education and health care costs more
• cost- something that consumes resources
• Living Standards
• can only change through an increase/decrease of ability to produce/exchange
• when increased, there's more money to spend on things such as education