Chapter 1 - Scarcity And Economic Cost Flashcards
What is scarcity?
The quantity demanded exceeds quantity available when price is zero
What are two common rules in market economy and which is more important?
The existence of private property rights.
What is a command economy?
A system in which a central authority decides who should have something and who should not
What are the rules of a command economy?
Resources are publicly owned
Central planners coordinate economic activity
What is opportunity/economic cost?
The value of the best alternative
What is the difference between explicit and implicit costs?
Explicit cost is money you physically pay whereas implicit cost is the forgoing of money or a benefit
What is economics?
Economics is the study of individual behavior and the resulting effects on the allocation of scarce resources
What is marginal value?
The value of the additional unit of a good. Marginal value typically decreases as quantity increases
What is marginal cost?
The cost of the additional unit of a good
It usually increases as quantity increases
What is the difference between positive and normative analysis?
Positive analysis says the facts, or what IS whereas normative analysis is an opinion and says what SHOULD be.
What is sunk cost and where is it not included?
An expense that you cannot physically get back and is not included in decision making or opportunity cost.
