Week 1 What Is Economics and Why Is It Relevant? Flashcards
what is economics? (according to reading)
-a social science (The study of human behavior given scarcity)
-that studies the choices
-that individuals, businesses, governments and entire societies make
-when they cope with scarcity (We canʼt get everything we want)
-and the incentives (Rewards or penalties that encourage/discourage an action)
-that influence and reconcile those choices
what are the 2 main branches of economics? + explain them
-macroeconomics: the performance of the national economy and the global economy.
-microeconomics: the choices that individuals and businesses make, the
way these choices interact in markets and the influence of governments.
what are the 2 big questions of economics?+ the key terms associated
- What, how and for whom do objects get produced?
key terms: goods and services, factors of production (land, labor, capital, entrepreneurship), and their associated income (rent, wages, interest, profit). - When can the pursuit of self-interest promote social
interest?
Key terms: self-interest, social interest, efficiency, and fairness
def of scarcity
scarcity («Our inability to get everything we want»)
what are the basic assumptions of economics? (The Economic Way of Thinking)
● A choice is a trade-off
● People make rational choices (benefit vs. opportunity cost)
● Choosing at the margin (marginal benefit and marginal cost)
● Choices respond to incentives
how to address the qu° abt tensions btwn self- and social interest?
RC so self-interested choices can be predicted by incentives; and incentives can help reconcile the tensions between self-interest and social interest
explain A choice is a trade-off as basic assumption of economic way of thinking
When you choose one option, you forgo another. For example, if a government spends more on healthcare, it might spend less on education:
-Scarcity requires choices:Resources (time, money, goods, etc.) are limited, so people and societies must choose how to allocate them and choices
-Scarcity ≠ Poverty: Scarcity is an economic problem that affects everyone, including wealthy nations. Poverty is an extreme form of scarcity but not the only one
explain ppl make rational choices as basic assumption of economic way of thinking
People compare the expected benefit of an action to its opportunity cost and make decisions accordingly (rational choice).
-Opportunity cost: The next best alternative forgone (renoncer) when making a choice, EX: If you spend an hour studying, you lose an hour of leisure or work.
explain choosing at the margin as basic assumption of economic way of thinking
-Marginal benefit (MB): The additional benefit from consuming/producing one more unit of something.
-Marginal cost (MC): The additional cost incurred from consuming/producing one more unit.
-Decision Rule: If MB > MC → do more; if MB < MC → do less.
-Example: A company will keep hiring workers as long as the extra revenue from another worker exceeds the cost of hiring them
explain choices to respond to incentives as basic assumption of economic way of thinking
People adjust their behavior based on positive incentives (rewards) and negative incentives (punishments).
Example: Higher cigarette taxes discourage smoking.
what are the 2 main statements of economics (and explain)
- normative statement= what ought to be? (ex policy goals)
- positive statement= what is? what is currently believed about the way the world operates?: falsifiable by facts; main task of economists is to verify and test statements and “weed out those that are wrong”
-> economists use more the positive bcs interested by causes and effects
what is An economic model?
some aspects of the economic world that includes only those features needed for the purpose at hand.
why is eco relevant for IR?
- self-interest to know
some basic economic concepts
and principles (investments…) - Understand the repercussions of
government policy interventions. - IR draws heavily from other
disciplines, such as sociology,
psychology, and economics (for the research) - Many economic schools of thought share common ground, despite political narratives that divide them into extremes -> so avoiding polarization
what are graphs in economy? give the vocabulary of graphs
Graphs are valuable tools to clarify what
otherwise might be obscure relationships
Two variable graphs use two perpendicular scale lines: Vertical line → y-axis; horizontal line → x-axis; the common zero point → origin.
curves= used to illustrate the relationships among variables in an economic model
linear, constant, minimum, maximum…
what is a scatter diagram?
A scatter diagram plots the value of one variable against the other → a collection of
points, each having the value of one variable on the x-axis and the other thereof on the y-axis.
in eco graphs, what are the 6 relationships btwn data?
- positive linear relationship (curve is straight and rise stared from the origin)
- positive becoming steeper (convex curve like half a u starting from the origin)
- positive becoming less steeper (concave curve like half a n starting from the origin).
- negative linear relationship (curve is straight and fall until 0 in the x axis)
- negative becoming steeper (concave curve)
- negative becoming less steeper (convexe curve)
how to calculate the slope of a straight line?
delta y/ delta x
how to calculate the slope of a curve?
- slope at a point (draw the tangente in a point and calculate delta y/ delta x
- across an arc= take 2 points next to the maximum of the arc, draw a line btwn the 2 points and calculate delta y/ delta x
what is Ceteris Paribus
used when analyzing relationships between two variables while assuming that everything else stays unchanged.
but when other things change, the curve shifts from right to left
what is a PPF and what are its assumptions?
The Production Possibility Frontier: A graph that shows the maximum possible combinations of two goods an economy can produce, given its resources and technology.
basic assumptions:
1. Scarcity: Limited resources mean not all combinations are possible.
2. Ceteris Paribus: Other factors remain unchanged.
3. Homo Economicus: People act rationally to maximize utility or profit.
what abt Production Efficiency & Trade-Offs Along the PPF
-Production efficiency: All resources are fully utilized (on the PPF curve).
-Trade-offs: Moving along the PPF means sacrificing some of one good to produce more of another.
Example: a country can produce either military goods (guns) or consumer goods (butter). If it produces more guns, it must reduce butter production (opportunity cost).
Why is the PPF Bowed-Out (courbé)?
Increasing Opportunity Cost: Resources are not perfectly adaptable for producing all goods.
Example: If a country shifts workers from farming (butter) to weapons production (guns), at some point, the cost of producing an extra gun rises.
in PPF, which point is the best?
-No objectively “best” point—it depends on societal goals (more consumer goods vs. more capital goods).
-Allocative efficiency: The best mix of goods for society (MB = MC).
what are the consequences of extension of the PPF?
- Economic growth:
- Capital accumulation: More machines, tools, and infrastructure increase production capacity.
-Technological progress: Innovations improve efficiency.
-Effect on PPF: Shifts outward, meaning the economy can produce more in the future. - Gains from Trade
-Comparative Advantage: A country or person should specialize in producing what they have a lower opportunity cost in and trade for the rest.
-Absolute Advantage: A country/person is more productive in producing a good than others.
-Effect on PPF: Specialization and trade allow an economy to consume beyond its PPF.
EX:If Jack can produce apples at a lower opportunity cost than Erin, and Erin can produce oranges at a lower opportunity cost, then both benefit from trading instead of trying to produce everything themselves.
