Chapter 1-4 Flashcards
(40 cards)
Efficiency
The property of society getting the most it can from its scarce resources
Equality
The property of distributing economic prosperity uniformly among the members of society
2 Opportunity cost of something is what you give up to get.
There is no free lunch. Choosing leisure over work means money lost.
3 Rational people think at the margin.
Take prior experiences into consideration. Rational people do their best to think of marginal benefits and costs.
4 People respond to incentives.
Analyze decisions in terms of cost-benefit (rebates, warranties)
5 Trade can make everyone better off.
Trade is mutually beneficial when people specialize in their comparative advantages. (Distributing work load in a group project to whoever does what best.)
6 Markets are usually a good way to organize economic activity.
Smith’s Invisible Hand Theory
7 Governments can sometimes improve market outcomes.
Markets can fail due to market power (monopoly) or externalities (e.g. Pollution) or may not exist at all without government help.
Government regulation/intervention mayyy help
8 A country’s standard of living depends on its production.
As productivity rises, standards of living roses. Make more, earn more, buy more stuff.
9 Prices rise when the central bank (Feds) prints too much money
More money available, consumers spend more and bid up prices
A country’s standard of living depends on its production
As productivity rises, standards of living rises
What is microeconomics?
Operations of individual economic units- consumers and producers/households and markets
What is economics?
Study of how society manages its scarce resources.
10 Society faces a short-run trade off between inflation and unemployment
Phillips curve: as prices rise, firms can afford to hire more workers and unemployment falls. Over the long run, wages rise too
What is macroeconomics?
Overall aspect of an economy-level and growth of output, income, inflation, unemployment
Why is economic also social?
Interested in the behavior of economic actors
What is the circular-flow diagram?
Visual model of the economy that shows how money and inputs/outputs flow through markets among firms and households.
Why science in economics?
They think analytically and objectively. Examine methodically by deprecating into parts and studying interrelations. Based on observable phenomena.
What are models?
Simplified representations of the real world. They should be SIMPLE (assumptions), GENERAL(applies everywhere), and USEFUL(never wrong). They are the standard for explains observations.
1 People face trade offs
Making a choice involves selecting one option over another work or leisure.
Markets for good and services?
Households are buyers and firms are sellers.
Market for the factors of production?
Firms are buyers, households are sellers.
Circular flow diagram?
Shows how dollars flow through markets among households and firms.
Factors of production?
Land, capital, labor
