Chapter 1 Flashcards
(23 cards)
What is economic history?
The economic history of the United States is a study in contrast. It is a story of remarkable successes punctuated with failures and shortcomings.
Using real income per person, the United States ranks at the top, yet height date suggest otherwise.
What explains this paradox?
Rising inequality may be one of the factors, with income and wealth inequality far greater in the US.
Do we limit opportunity?
yes.
USC (United State Code)
1. Federal Statutes
2. 53 Titles ( 2,000 crimes)
3. 22 Million Words
4. 25,000 Pages
What is economics?
examines the decisions of economic agents (primarily individuals, households, firms, and governments) about what they produce, exchange, and consume.
What is scarcity?
implies that choice have to be made, since human wants exceed available resources. Everyone face scarcity…everyone, since time is the ultimate scarce resource.
What is opportunity cost?
the opportunity cost of any choice is the value of the best alternative foregone in making that choice.
In a market economy…
individuals decide which goods and service to buy, where to work, and where to save and invest, based. in the signals and incentives provided by market prices.
Firms also respond to prices in
deciding whom to hire as well as what goods and service to provide
Market exchange facilitates
specialization and gains from trade through better allocation of resources and increased production.
Buyers look at prices to
decide how much to demand, whole sellers look at prices to decide how much to supply
Economics relies on
well-specified theories, often represented as mathematical models
A model is
nothing more than an abstract representation of reality
Economic models are built with
words, numerical tables, diagrams, and mathematical equations
Positive economics
purely descriptive statements or scientific predictions; “if A, then B”
- what is?
- what will be?
Normative economics
analysis involving value judgements; relate to whether things are good or bad
- what out to be?
- a sense of what is fair
Rational maximizing behavior implies that
individuals and firms respond to economic incentives. When the costs or benefits of an action changes, choices will be affected.
In order to make optimal decisions, decisions need to be made “at the margin,” where “maginal” means
additional
Consumer surplus is the
different between the price buyers are willing and able to pay and the price actually paid.
consumer surplus
the demand curve is
both the maximum “willingness to pay” curve and the consumers’ marginal benefit curve.
Producer surplus is the
difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives.
producer surplus
the supply curve is
both the minimum “willingness to sell” curve and the marginal cost curve for the firms in the market.
Path dependence
the dependence of economic outcomes on the path of previous outcome, rather than simply on current conditions.
Institutional Change
Institutions
embody the rules of the games that structure human and economic interactions.
they consist of the entire regulatory and legal framework, social norms, and formal and informal enforcement mechanism that structure how the economy functions.
