1 - Introduction to Economics Flashcards
(9 cards)
1
Q
What is Microeconomics?
A
Microeconomics studies - — the decisions of individuals, households, and firms in allocating resources.
- It focuses on how these agents interact in markets and how prices and quantities are determined.
- Unlike macroeconomics, which looks at the economy as a whole, microeconomics zeroes in on smaller, individual elements
2
Q
Why is simplification important in economic theory?
A
- Simplification makes complex problems easier to analyse.
- Economists use assumptions to focus on core relationships without distractions.
- This allows clearer predictions and helps make models applicable across different situations
3
Q
What is the Cost-Benefit Approach in decision-making
A
- This approach involves comparing the additional benefits and costs of a decision.
- An action is pursued if its benefits outweigh its costs.
- It aims to ensure resources are used efficiently for maximum welfare
4
Q
How do economic models function in theory?
A
- Economic models use simplified assumptions to represent complex realities.
- They help explain how economic forces work and make it easier to predict outcomes.
- Models provide a structured way to explore cause-and-effect relationships
5
Q
What are the common pitfalls in decision-making that economic theory aims to address?
A
- Sunk cost fallacy: People often consider past costs that can’t be recovered, even though they shouldn’t.
- Neglecting opportunity costs: Failing to recognize the value of the next best option given up.
- Overestimating benefits: Ignoring associated costs, leading to poor decisions
6
Q
What is the difference between positive and normative economics?
A
- Positive economics deals with what is and provides statements that can be tested.
- Normative economics deals with what ought to be and involves value-based opinions.
Positive statements are objective, while normative statements reflect subjective views
7
Q
How does marginal analysis influence decision-making?
A
- Marginal analysis involves comparing the extra costs and benefits of an action.
- An action should be taken if the marginal benefits are greater than the marginal costs.
- It helps individuals and firms make optimal decisions regarding consumption and production
8
Q
What is the Economic Naturalist approach?
A
- This approach uses everyday examples to explain economic concepts.
- It helps develop economic intuition by linking theory to practical observations.
- By using this approach, students can better understand how economic ideas apply in real life
9
Q
What are ‘sunk costs’ and how should they be treated in decision-making?
A
- Sunk costs are past expenses that cannot be recovered.
- These costs should not affect current decisions, as they are irrelevant to future outcomes.
- Rational decision-making focuses only on future costs and benefits
