7 Principles of Economics Notes Flashcards
(21 cards)
Resources are limited so economists study…
How people make choices fulfilling their wants and needs using limited resources.
Micro-economics…
How individuals, businesses, and households make decisions.
Macro-economics…
How entire economy works.
In a given area (usually a nation) an economy describes…
The production, distribution, and consumption of limited resources.
Scarcity is
All resources limited.
Tradeoffs are…
Options you give up when you make a choice.
How does scarcity force tradeoff?
Since all resources are scarce, people and societies, must make choices that forces making trade offs.
Every choice requires trade offs
Costs are…
What you spend when choices are made (time, $, resources)
Benefits are
What you get (time, $, etc)
What is the costs versus benefits principle?
When people make a choice, it’s always because they think the benefit outweigh the cost.
What is a cost-benefit announcements
Listing out the costs of benefits of a decision and then making a choice.
Margin definitions
Margin; outside edge or border
marginal benefit; what you gain by adding a unit
Marginal cost; what you lose by adding a unit
What is thinking at the margin?
Considering the marginal cost and benefit involved in making a decision
What is an incentive?
Something that motivates a person to act in a certain way.
Why do incentives matter?
Incentives motivate our behavior whether we realize it or not.
In general, people respond to incentives in predictable ways.
What is trade?
A voluntary exchange of goods.
How does trade off make people better off?
We trade because it’s inefficient to everything we need.
Trade allows certain people or countries to specialize and then trade for what they need/want.
What is a market?
A space where buyers and sellers (do business)
How do markets trade?
In a marketplace with a limited government intervention, buyers, sellers are free to conduct trade.
In this type of marketplace, the buying and selling of goods/services is naturally efficient.
Adam Smith described the efficiency of free markets as the
“invisible hand” guiding buyers and sellers.
Why do future consequences matter?
When we make decisions, the effects or consequences are far reaching.
A choice we make today may impact us or others in the long run.
