Chapter 1 Flashcards
(22 cards)
Why is economics called the dismal science?
First used by thomas Carlyle after Thomas Malthus predicted that population growth coupled with the planet’s limited resources would lead to widespread starvation.
What was something Malthus did not take into account when making his predictions?
Increasing technology and productivity.
What are the five foundations of economics?
1) Incentives. 2) Trade-offs. 3) Opportunity Cost. 4) Marginal Thinking. 5) Principle that trade creates value.
Scarcity
Refers to the limited nature of society’s resources given unlimited wants and needs. (Imagine Skeksi arguing over who gets the last essence)
Economics
The study of how individuals and societies allocate their limited resources to satisfy their nearly unlimited wants. (Imagine there is only one grilled cheese left in existence, no others can be made. Imagine an individual and a society deciding who gets the last grilled cheese)
Microecnomics
The study of the individual units which make up the economy.
Macroeconomics
Study of the overall aspects and workings of an economy.
Incentives
Factors which motivate a person to act or exert effort
What are the four kinds of incentives?
1) Positive.
2) Negative
3) Direct
4) Indirect
What are some examples of unintended consequences?
1) People staying on welfare despite lacking a need to have welfare. 2) Australia’s 2004 Baby Bonus leading to delaying having a child. 3) US tax incentives leading to cesarean or induced labor prior to the new year.
Trade offs
Every decision incurs a cost. By understanding trade offs we will make more informed decision about how to utilize scarce resources.
Opportunity costs
The highest valued alternative that must be sacrificed to get something else.
Economic thinking
Requires a purposeful evaluation of the available opportunities to make the best decision possible.
Marginal thinking
requires decision makes to evaluate the benefit of one more unit of something.
Circular flow
Shows how goods and services flow through the economy.
Product market
Market between households and firms.
Resource market
Market between households and firms where households act as sellers and firm act as buyers.
Barter
Involves individuals trading a good they already have or providing a service in exchange for something they want.
Double coincidence of wants
Occurs when each party in an exchange transactions has what the other party desires.
Trade
Voluntary exchange of goods and services between two or more parties.
Comparative advantage
A situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can.
Why is outsourcing important to economic growth?
If a firm can get the same service by outsources customer service, it leads to lower costs for the company and subsequently lower cost for the consumer. This leads to economic growth because the same money can buy more goods and services.
