Chapter 1 Flashcards
Economics is
the discipline that studies how efficient decisions are made
Efficient decisions involve
choosing the most valuable alternative
What is the theory of revealed preference?
our choices reveal our values
What are the three characteristics of value?
- Value depends on the situation
- Value is different for different people
- Subsequent units of the same good have less value
What is the optimal arrangement principle?
The idea that we first choose the best, then the second best, and so on
The value of something to an individual is
The most that individual is willing to sacrifice to obtain that something
What is cost?
The value of the best alternative which is sacrificed when a decision is made.
What is the no free lunch principle?
Since any decision has at least two alternatives, any decision involves costs
Macroeconomics is
the study of entire economies, using concepts like total output, the unemployment rate, the national debt, total investment
What is scarcity?
Having many more wants than our resources can satisfy
What is marginal value?
the value of the individual units of that something
Ex: Pizza by the slice, value decreases with each piece eaten
What is marginal analysis?
We consume each unit for which the marginal value is at least as great as marginal cost
What is the Law of Diminishing Returns?
As we add workers to a production facility, eventually they become less productive because there’s no way for everyone to take part in the production process
Demand is
the relationship between the possible prices of something and the quantities people are willing to buy, other things equal.
Supply is
the relationship between the possible prices of something and the quantities people/firms are willing and able to sell, other things equal.
