Chapter 1 Flashcards
(22 cards)
Economics
The discipline that studies how efficient decisions are made
Efficient Decisions
Involve choosing the most valuable alternative
Theory of Revealed Preference
Our choices reveal our values
Characteristics of Value
Value depends on the situation, and value is different for different people, subsequent units of the same good have less value
Optimal Arrangement Principle
The idea we choose the best, then the second best, and so on
Value of Something to an Individual
The most that an individual is willing to sacrifice to obtain that something
Cost
The value of the best alternative which is sacrificed when a decision is made
No Free Lunch Principle
Any decision involves cost
Macroeconomics
The study of entire economies, using concepts like total output, the unemployment rate, the national debt, total investment
Scarcity
We have more wants than our resources can sacrifice
Marginal Value
The value of the individual units of that something
Marginal Analysis
We consume each unit for which the marginal value is at least as great as marginal cost
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
The relationship between the possible prices of something and the quantities people are willing to buy, other things equal
Supply
The relationship between the possible prices of something and the quantities that people or firms are willing and able to sell, other things equal
Equilibrium Price
Consumers can buy all they want and, at the same time, firms can sell all they want.
Social Gain
Total Value - Total Cost
Consumer’s Gain
Total Value - Total Amount Paid
Producer’s Gain
Total Amount Paid - Total Cost
Economic Problem
Allocating scarce resources to their best uses
Changes in Supply
Shifts in the supply curve
Changes in Demand
Shifts in the demand curve
