1 Flashcards
(35 cards)
Choosing one thing means giving up another. Example: Time spent studying vs. relaxing.
People face trade-offs
Includes money, time, or other opportunities.
The real cost of something is what you give up to get it
Decisions are made by weighing additional benefits vs. additional costs.
Rational people think at the margin
Rewards and penalties shape behavior. Example: Discounts encourage more purchases.
People respond to incentives
Trade allows people and countries to specialize in what they do best, increasing efficiency and satisfaction.
Example:
The Philippines imports technology from other countries while exporting products like bananas or coconuts.
Trade can make people better-off
Markets (buying and selling) help match people who need something with those who can provide it.
Example:
Stores stock popular snacks because people buy them.
Markets are usually a good way to organize economic activity
Governments fix problems that markets can’t solve alone.
Example:
Rules stop factories from dumping waste into rivers.
Governments can sometimes improve market outcomes
Countries that make more things usually have better lives for their people.
Example:
Rich countries make a lot of products like cars, phones, and food.
A country’s standard of living depends on its ability to produce goods and services
Printing too much money makes things more expensive.
Example:
If everyone suddenly had more cash, bread might cost 5 times more.
Prices rise when the government prints too much money
Lowering unemployment (more jobs) might cause higher prices, and controlling prices might mean fewer jobs.
Example:
If a government spends money to create jobs, goods might become expensive.
Society faces a short-run trade-off between inflation and unemployment
society has limited resources and
therefore cannot produce all the goods
and services people wish to have.
(Mankiw, 2015)
Scarcity
limitations–limited goods or services,
limited time, or limited abilities to
achieve the desired ends.
(EconLib, 2023)
Scarcity
the idea that resources (such as time, money,
land, labor, capital, entrepreneurship, and
natural resources) are only available in limited
quantities, whereas wants are unlimited.
Scarcity
The social science which deals with the
production, distribution, and consumption of
limited goods and services to satisfy unlimited
needs and wants.
Economics
The study of how society manages its scarce
resources.
(Mankiw, 2015)
Economics
Branch of economics that deals with
the behavior of individual economic units—consumers,
firms, workers, and investors—as well as the markets that
these units comprise
● microeconomics
Branch of economics that deals with
aggregate economic variables, such as the level and
growth rate of national output, interest rates,
unemployment, and inflation
● macroeconomics
have limited incomes, which can be spent on a
wide variety of goods and services, or saved for the future
Consumers
also face constraints and make trade-offs. First,
people must decide whether and when to enter the
workforce. Second, workers face trade-offs in their choice of
employment. Finally, workers must sometimes decide how
many hours per week they wish to work, thereby trading off
labor for leisure
Workers
also face limits in terms of the kinds of products that
they can produce, and the resources available to produce
them
Firms
Microeconomics describes how prices are
determined.
In a centrally planned economy, prices are set by
the government.
In a market economy, prices are determined by the
interactions of consumers, workers, and firms.
These interactions occur in markets—collections of
buyers and sellers that together determine the price
of a good
Prices and Markets
In economics, explanation and prediction are based on
theories. Theories are developed to explain observed
phenomena in terms of a set of basic rules and assumptions.
A model is a mathematical representation, based on
economic theory, of a firm, a market, or some other entity
Theories and Models
Analysis describing relationships of
cause and effect.
positive analysis
s Analysis examining questions of
what ought to be.
● normative analysis
