Introduction to Economics Flashcards
(41 cards)
What is the definition of economics?
Social science that studies the choices that individuals, businesses, govs, and entire societies make as they cope with scarcity and incentives that influence and reconcile choices.
What is macroeconomics?
The study of the performance of the national economy and the global economy
What is microeconomics?
The study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments.
In the question “what, how and for whom?” what is the “what” part?
What: what we produce varies globally and changes throughout time.
E.g US today: agriculture 1% total production, manufactured goods 22%, services 77%.
China today: agriculture 10%, manufactured goods 47% and services 43%.
In the question “what, how and for whom” what is the “how” part?
Technology and resources determines how we produce. Resources used to produce goods = factors of production (Capital, entrepreneurship, land, labour)
What are the factors of production?
- Capital - machinery
- Entrepreneurship - human resource that organises labour, land and capital. They are the drivers of economic progress
- Labour - physical and mental efforts from people working
- Land - raw materials
In the question, “what, how and for whom” what is the “for whom” part?
- Who consumes goods and services depends on income. - Large incomes = larger range of goods and services that can be bought.
- Small incomes = fewer options and smaller range of goods and services.
How do people earn income?
By selling the services of the FOPs they own: land earns rent, labour earns wages, capital earns interest and entrepreneurship earns profit. Labour earns most income
In the question “Does the Pursuit of Self Interest Unintentionally Promote the Social Interest?” what does self interest refer to?
When you making a choice due to thinking it is the best on available for you. All the choices made about how to use time and other resources are made in the pursuit of self interest.
In the question “Does the Pursuit of Self Interest Unintentionally Promote the Social Interest?” what does social interest refer to?
An outcome is in the social interest if it is best for society as a whole. E.g starting a business because it makes YOU a profit, provides WORKERS with a job and allows CUSTOMERS to pursue their self interest of buying from you.
What is efficiency?
- When a situation can’t be improved upon
- Resource use is efficient if it is not possible to make someone better off without making someone else worse off
What is the definition of unfairness?
Too much inequality is unfair
What is globalisation?
Expansion of international trade, borrowing, lending and investment. Brings jobs and destroys others - particularly in manufacturing.
For whom does globalisation work in the self interest of?
Of those consumers who buy low cost goods and services produced in other countries, also in the interest of the firms producing the goods who sell in high cost regions but produce in low cost regions.
What are the consequences of Information Age monopolies?
- Climate change as self interested choices contributes to global warming
- Economic instability - 1993-2007 = economic instability. Known as Great Moderation.
What is market capitalism as an economic system?
Individuals own all the land and capital and are free to buy and sell land, goods and services in markets. No supreme planner guiding the use of scarce resources and the outcome is unintended and unforeseeable.
What is centrally planned socialism as an economic system?
Gov owns all the land and capital, directs workers to jobs and decides what, how and whom for to produce. The USSR and several Eastern European countries and China have used this system in the past. Economies today tend to be mixed.
What do protesters against market capitalism believe?
- Big corporations have too much power and influence on govs
- Democratically elected govs do a better job of allocating resources
- Big corporations are winners, workers are losers
What do economists believe regarding market capitalism?
- The self interest of big corporations is maximum profit
- Decisions unintentionally promote social interest
- Politicians are ill equipped to regulate corporations or to intervene in markets
- In a market, buyers get what they want for less than they would be willing to pay and sellers earn a profit so they both gain
In terms of the economic way of thinking, what is a choice?
A tradeoff - whatever choice you make, you could have chosen something else. Exchange - giving up one thing to get something else.
What is a rational choice?
- One that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice
- Only the wants of the person making a choice are relevant to determine its rationality
What are benefits in terms of the economic way of thinking?
- Gain or pleasure a choice brings
- Determined by preferences
- Some benefits large and easy to identify
- Some benefits small
- Benefit measured as the most that a person is willing to give up to get something else
What is the cost in terms of the economic way of thinking?
What you must give up - opportunity cost - highest valued alternative that must be given up to get it
What does choosing at the margin refer to?
- The OC of an increase in activity is called marginal cost
- To make decisions, you compare marginal benefit and marginal cost
- If the marginal cost exceeds the marginal benefit, you don’t make the decision
