Chapter 1 & 2 (Basic Principles and Glossary of Terms for Microecon.) Flashcards
(21 cards)
Economics
Study of how society allocates scarce resources to satisfy peoples’ unlimited wants.
Scarcity
Society has limited resources and therefore can’t produce all the goods and services people want.
Microeconomics
Focuses on the individual parts of the economy.
- Households & firms
Macroeconomics
Looks at the economy as a whole.
- Economy-wide issues, inflation, unemployment, economics growth
Market economy
allocates resources through the decentralized decisions of firms and households
Contrast of market economy:
Command Economy
Traditional economy
rely heavily on customers, beliefs, religion, etc.. to make economic decisions
1 model: The circular-flow diagram
Firms
Produce and sell goods and services
Hire and use factors of production
Households
Buy and consume goods and services
Own and sell factors of production
Most economies are mixed…
market economy, traditional economy, command economy
Economic rationality
making decisions that maximize the benefits the decision-maker recieves
asymmetrical information
not everyone has the same information eg. sellers know more about their information than buyers
economic models involve
making assumptions based on theory
Resource aka inputs aka factors of productions
anything can be used to make something else
3 big resources
land, labour, capital (physical: machinery, buildings NOT portfolifo/finances) *recently entrepreneurship has been included as a resouce
Opportunity cost
of something.. is everything you have to give up to get it… it is the best foregone alternative
eg. 28 000 income if u didnt go to school + 15000 on tuition… opportunity cost = 43000
Explicit costs
something u can get a receipt for
Foregone alternative…impicit cost
giving it up… you dont get a receipt cause it never physically happened… i.e. spending tuition on a car
marginal changes
small, incremental changes to an existing plan “just one more”.. ppl make decisions by comparing marginal benefits to marginal costs
“Invisible hand” (Adam Smith= farther of economics)
guides buyers and sellers to each other to come to some agreed upon price and trade
efficiency
equity
fair distribution of resources (political decisions)
Slide 20-23 Look at em.
Markets for goods & services: Firms sell/househoulds buy
markets for factors of production: househoulds sell/firms buy & hire
factors of production: land, labour, capital (entrepreneurs)
positive statements vs negative statements
attempt to describe the world as it is
- descriptive analysis
about how the world should be
- prescripted analysis
