Chapter 1 Flashcards
Economics
The study of the choices people make to attain their goals given their scarce reasources
Economic model
Simplified versions of reality to analyze real-world economic situations
Market
A group of buyers and sellers coming together to trade
Three economic ideas
People are rational, people respond to economic incentives, optimal decisions are made at the margin
Marginal analysis
Comparing marginal benefits and costs
Trade-off
Producing more of one good means producing less of another good
Opportunity cost
highest-valued alternative that has to be given up
Centrally planned economy
government decides how economic resources will be allocated
Market economy
Decisions of households and firms decided how economic resources will be allocated
Mixed economy
Economic decisions are made by buyers and sellers with some government involvement
Productive efficiency
Produced at the lowest possible cost
Allocative efficiency
Produced with consumer preferences
Positive analysis
What is
Normative analysis
What ought to be
Microeconomics
How households and firms make choices, how they interact in markets, how government attempts to influence their choices
