ECON Micro Flashcards
(34 cards)
Define economics
-The study of how people make choices with their limited resources to satisfy wants.
What is the difference between microeconomic and macroeconomics?
Microeconomics:
The study of decision making by individual households and individual firms.
-focus on the smaller parts of the economy:
-effects of changes in the price of gasoline relative to other energy sources
-effects of new taxes on a specific product or industry
-if the government establishes new health regulations, how individual firms and consumers will react to those regulations
Macroeconomics:
The study of nationwide phenomena, aggregates, or totals—such as:
-inflation and unemployment levels.
-the behaviour of the economy as a whole
-Total output in an economy
-The general price level
-The national income
Define economics
Economics is the study of how individuals make choices to satisfy wants.
-examines situations in which individuals choose how to do things, when to do things, and with whom to do them.
Explain why economics is a science
-employs the same kinds of methods used in other sciences, such as biology, physics or chemistry.
-uses models or theories to explain economic phenomena in the real world
What is the difference between positive and normative economics?
Positive economics:
-Purely descriptive statements or scientific predictions, such as “If A, then B”
-A statement of what is
Normative economics:
-Analysis involving value judgments; relates to whether things are good or bad
-A statement of what ought to be
Define incentives
-Rewards for engaging in a particular activity
-The nature of self-interested responses to incentives is the starting point for economic analysis
What is the economic way of thinking?
A way of thinking about all decisions:
-Your education, career, finances, how you vote etc
-How much time to study
-Choosing which courses to take
-Whether the Canadian government should provide more grants to universities or raise taxes
Whats the difference between resources and wants:
Resources:
-Things that have value and are used to produce goods and services that satisfy people’s wants
Wants:
-What people would buy if they had unlimited income
How are Artificial intelligence (AI) technologies used in economics?
The development and use of automated data-analytics techniques, machine learning, and virtual or augmented reality help consumers, businesses, and governments make decisions. These methods often handle large volumes of information, known as big data, to uncover previously hidden relationships.
What is the economic system?
The institutional mechanism that determines the way scarce resources are utilized to satisfy human wants
The Three Basic Economic Questions
- What and
- how much will be produced?
- For whom will items be produced?
Two Opposing Sets of Answers to the Three Basic Economic Questions
The two sets of answers are provided by the type of economic system:
1. Centralized command and control (central planning): Authority that makes all economic decisions
2. Price system (market system): Decentralized decision-making process, in which prices are terms (signals) under which people agree to make exchanges
What are mixed systems?
incorporate aspects of both centralized command and control and a decentralized price system.
Explain Systematic Decisions
Economists assume that individuals act as if motivated by self-interest and respond predictably to opportunities for gain.
What is the Rationality assumption?
The assumption that people do not intentionally make decisions that would leave them worse off
-they are motivated mainly by self-interest.
Define self interest?
The pursuit of one’s goals:
Prestige
Friendship
Love
Does not always mean increasing one’s wealth
What are economic models or theories?
Simplified representations of the real world used as the basis for predictions or explanations
-capture only the essential relationships that are sufficient to analyze a problem
What are assumptions?
The set of circumstances in which a model is applicable
Every model or theory must be based on a set of assumptions
What is the Ceteris paribus [KAY-ter-us PEAR-uh-bus] assumption
-Nothing changes except the factor or factors being studied
-“Other things constant”
-“Other things equal
Why is Economics an empirical science?
-Economists use models, or theories, that are simplified representations of the real world evidence (data) to analyze and make predictions about the real world.
What are economic models of behavior?
-predict economic phenomena
-how people react, (not how they think)
-People’s declared preferences are generally of little use in testing economic theories
Define Behavioural economics
An approach to the study of consumer behaviour:
Emphasizes psychological limitations and complications that may interfere with rational decision making
What is Bounded rationality?
Hypothesis that people are nearly, not fully, rational:
-They cannot examine every choice available to them
-They appear to use rules of thumb to sort alternatives
-believe that it is “unrealistic” to assume:
Unbounded selfishness
Unbounded willpower
Unbounded rationality
Define Rules of Thumb
A key implication of bounded rationality
Because every possible choice cannot be considered, an individual will tend to fall back on methods of making decisions that are simpler than trying to sort through every possibility
