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HOARDING: The act of accumulating assets, especially goods or money, over and above that needed for immediate use based on the fear or expectation of future shortages and higher prices. For example, concerns about a worldwide shortage of sugar and chocolate might prompt a consumer to purchase several hundred boxes of candy, which are stored in a wine cellar. Alternatively, someone fearing a global collapse of the financial system might be inclined to pack pillow cases with bundles of cash or stockpile gold bullion in the closet. Such hoarding, if widely practiced, can actually contribute to the anticipated shortage and higher prices.

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Lesson 4: Production Possibilities | Unit 5: Investment Page: 19 of 24

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Investment is the tradeoff between consumption goods used for current satisfaction and capital goods that expand future productive capabilities.
  • Investment is not just putting money into the stock market. Investment is giving up current satisfaction to obtain greater future production, usually seen as giving up consumption goods to produce capital goods.
  • Education and human capital that increase the productive skills and ability of labor.
  • Exploration for mineral or fossil fuel deposits that add to land resources.
  • Scientific research that expands technology and resource quality.
  • The downside of investment is risk. There is no guarantee that you'll get something tomorrow.
Let's consider this basic tradeoff between capital and consumption.
  • Capital and consumption are the two basic types of goods needed for investment. If we produce more calibrators (capital), then we give up some jogging shoes (consumption).
  • This tradeoff IS the fundamental act of investment. In the graph to the right, if we move from bundle A to E to I, we are giving up jogging shoes and getting calibrators.
We are investing!

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RISK

The quantitative probability of different future outcomes occurring. The assignment of probabilities can be subjective (based on a "feeling") or objective (based on historical data). Risk is related to the concept of uncertainty, which is simply not knowing what the future holds. People have three alternative preferences when confronting risk -- risk aversion, risk neutrality, and risk loving. Risk aversion is key to the provision of insurance.

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Today, you are likely to spend a great deal of time wandering around the downtown area trying to buy either a revolving spice rack or a how-to book on home repairs. Be on the lookout for the last item on a shelf.
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Only 1% of the U.S. population paid income taxes when the income tax was established in 1914.
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European Free Trade Association
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