Intro To Economics Flashcards
(20 cards)
What is economics?
Economics is the social science studying how people and societies use limited (scarce) resources to satisfy unlimited wants and needs.
What is scarcity?
Scarcity refers to the fundamental economic fact that resources (land, labor, capital) are limited while human wants are virtually unlimited.
What is Utility?
Utility is the satisfaction or benefit a person receives from consuming a good or service.
What is microeconomics?
Microeconomics is the branch of economics that studies how individual consumers and firms make decisions about allocating scarce resources.
It focuses on specific markets and the choices of households and businesses.
What is macroeconomics?
Macroeconomics is the branch of economics that deals with the economy as a whole.
It examines aggregate measures such as total output (GDP), national income, inflation, and unemployment.
How do microeconomics and
macroeconomics differ?
Microeconomics looks at individual markets and decision-makers (like households and firms), whereas macroeconomics looks at the overall economy (e.g. total income, inflation, unemployment).
Micro focuses on parts of the economy; macro focuses on aggregate performance and policy.
What is positive economics?
Positive economics describes and explains economic phenomena without making value judgments. It focuses on “what is” based on data and facts.
For example, it answers questions like “What will happen to unemployment if taxes are cut?” without saying whether the outcome is good or bad.
What is normative economics
Normative economics involves value judgments about what the economy should be like or what policy actions ought to be taken. It focuses on “what ought to be,”
e.g. “The government should reduce unemployment,” which reflects opinions and goals.
What is the law of demand?
The law of demand states that, all else equal, as the price of a good rises, the quantity demanded falls.
In other words, consumers buy less of a product when its price goes up (and more when its price goes down.
What is the law of supply?
The law of supply states that, all else equal, as the price of a good rises, producers will supply a larger quantity.
In plain terms, higher prices incentivize firms to produce and sell more of the good, and lower prices lead them to supply less.
What is the law of diminishing marginal utility?
This law says that as a person consumes more units of a good, the additional satisfaction (marginal utility) from each extra unit decreases.
For example, the first slice of pizza gives high satisfaction, but each additional slice yields less additional utility.
What is the law of diminishing returns?
The law of diminishing returns states that if one factor of production (e.g. labor) increases while other factors (e.g. capital, land) are held constant, beyond some point each additional input yields smaller.
In other words, adding more of one input eventually leads to less extra output.
What is opportunity cost?
Opportunity cost is the value of the best alternative foregone when making a choice.
It represents what you give up (in terms of the next-best use of a resource) when you decide to allocate resources in a particular way.
Who was Adam Smith and how did he define economics?
Adam Smith (1723-1790), often called the “father of economics,” defined economics as “the science of wealth” in The Wealth of Nations.
He analyzed how nations become wealthy through production, specialization, and trade, and introduced the idea that an “invisible hand” guides free markets.
What was Alfred Marshall’s definition of economics?
Alfred Marshall (1842-1924) defined economics as “a study of mankind in the ordinary business of life,” focusing on the attainment and use of material welfare.
He viewed economics as a social science concerned with how people maximize well-being, treating wealth as a means to human welfare.
How did Lionel Robbins define economics?
A: Lionel Robbins (1932) defined economics as “the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”.
This definition emphasizes scarcity: economics is about how individuals allocate limited resources among competing needs.
How does Robbins’ definition highlight the role of scarcity?
By focusing on “scarce means” relative to “ends,” Robbins’ definition makes scarcity central to economics.
It shows that economics studies choices and prioritization when resources are limited, since every alternative use of a resource means something else must be given up.
What does “ceteris paribus” mean in economics?
Ceteris paribus is a Latin term meaning “other things being equal.”
It’s used in economic laws to indicate that we hold all other relevant factors constant when examining a relationship.
For example, the law of demand states that other things equal, a price increase causes demand to fall.
How are economic laws different from physical laws?
Economic laws are generalizations about human behavior and are true only under certain assumptions (ceteris paribus). They express tendencies rather than exact certainties.
For instance, an economic law might say demand will likely drop if price rises, but it does not claim this will happen in every single case.
Give one example of how an economic law is a statement of tendency?
For example, the law of supply states that if price falls, supply is likely to fall. It does not say supply must fall in every circumstance.
This shows economic laws describe typical behavior under given conditions, not ironclad rules.
