Introduction to economics Flashcards
What is Scarcity?
Scarcity is the reason that all economic problems arise
Resources are limited, but our needs and wants are not limited.
Resources (tangible and intangible)
Resources can be tangible and intangible.
Example (tangible): money
Example (intangible): Time constraint
What are the choices we make based on?
Incentives
What is economics?
Social science that analyses the choices that individuals, businesses, governments and societies make as they deal with scarcity and the incentives that promote them to make the decisions they make.
What does economics deal with?
Effectiveness and efficiency in managing our resources.
Macroeconomics
Study of the aggregate effects on the national economy and the global economy from the choices that individuals and governments make.
Microeconomics
Study of the choices and interactions between individuals and businesses (consumers and producers) in a market, and how their interactions are influenced by local governments.
Economic ways of thinking
- Choice is a tradeoff
- Cost is what you must give up to get something
- Individuals make rational choices by comparing benefits to costs
- Benefit is what you gain from something
- Most choices are “how much” choices made at the margin.
- Choices respond to incentives
Tradeoff
Is an exchange, giving up one thing to get another
Opportunity cost
The highest value alternative forgone. The best thing that you must give up to get something.
Opportunity cost=
Explicit costs + implicit costs
Explicit costs
What you actually pay
Implicit costs
What you are giving up
Rational choice
Choice that uses the available resources to best achieve the objective of the person making the choice.
A choice made at the margin…
A choice made by comparing all relevant alternatives systematically and incrementally.
