1 Flashcards
Choosing one thing means giving up another. Example: Time spent studying vs. relaxing.
People face trade-offs
Includes money, time, or other opportunities.
The real cost of something is what you give up to get it
Decisions are made by weighing additional benefits vs. additional costs.
Rational people think at the margin
Rewards and penalties shape behavior. Example: Discounts encourage more purchases.
People respond to incentives
Trade allows people and countries to specialize in what they do best, increasing efficiency and satisfaction.
Example:
The Philippines imports technology from other countries while exporting products like bananas or coconuts.
Trade can make people better-off
Markets (buying and selling) help match people who need something with those who can provide it.
Example:
Stores stock popular snacks because people buy them.
Markets are usually a good way to organize economic activity
Governments fix problems that markets can’t solve alone.
Example:
Rules stop factories from dumping waste into rivers.
Governments can sometimes improve market outcomes
Countries that make more things usually have better lives for their people.
Example:
Rich countries make a lot of products like cars, phones, and food.
A country’s standard of living depends on its ability to produce goods and services
Printing too much money makes things more expensive.
Example:
If everyone suddenly had more cash, bread might cost 5 times more.
Prices rise when the government prints too much money
Lowering unemployment (more jobs) might cause higher prices, and controlling prices might mean fewer jobs.
Example:
If a government spends money to create jobs, goods might become expensive.
Society faces a short-run trade-off between inflation and unemployment
society has limited resources and
therefore cannot produce all the goods
and services people wish to have.
(Mankiw, 2015)
Scarcity
limitations–limited goods or services,
limited time, or limited abilities to
achieve the desired ends.
(EconLib, 2023)
Scarcity
the idea that resources (such as time, money,
land, labor, capital, entrepreneurship, and
natural resources) are only available in limited
quantities, whereas wants are unlimited.
Scarcity
The social science which deals with the
production, distribution, and consumption of
limited goods and services to satisfy unlimited
needs and wants.
Economics
The study of how society manages its scarce
resources.
(Mankiw, 2015)
Economics
Branch of economics that deals with
the behavior of individual economic units—consumers,
firms, workers, and investors—as well as the markets that
these units comprise
● microeconomics
Branch of economics that deals with
aggregate economic variables, such as the level and
growth rate of national output, interest rates,
unemployment, and inflation
● macroeconomics
have limited incomes, which can be spent on a
wide variety of goods and services, or saved for the future
Consumers
also face constraints and make trade-offs. First,
people must decide whether and when to enter the
workforce. Second, workers face trade-offs in their choice of
employment. Finally, workers must sometimes decide how
many hours per week they wish to work, thereby trading off
labor for leisure
Workers
also face limits in terms of the kinds of products that
they can produce, and the resources available to produce
them
Firms
Microeconomics describes how prices are
determined.
In a centrally planned economy, prices are set by
the government.
In a market economy, prices are determined by the
interactions of consumers, workers, and firms.
These interactions occur in markets—collections of
buyers and sellers that together determine the price
of a good
Prices and Markets
In economics, explanation and prediction are based on
theories. Theories are developed to explain observed
phenomena in terms of a set of basic rules and assumptions.
A model is a mathematical representation, based on
economic theory, of a firm, a market, or some other entity
Theories and Models
Analysis describing relationships of
cause and effect.
positive analysis
s Analysis examining questions of
what ought to be.
● normative analysis
Collection of buyers and sellers
that, through their actual or potential
interactions, determine the price of a product
or set of products
market C
Determination of the
buyers, sellers, and range of products that
should be included in a particular market.
market definition
Practice of buying at a low price
at one location and selling at a higher price in
another
● arbitrage
Competitive versus Noncompetitive
Markets
Market with many buyers and sellers, so that no single
buyer or seller has a significant impact on price.
● perfectly competitive market
Price prevailing in a competitive market.
● market price
Boundaries of a market, both
geographical and in terms of range of products
produced and sold within it.
● extent of a market
A company must understand who its actual
and potential competitors are for the various
products that it sells or might sell in the
future.
market important
Market definition can be important for
for public
policy decisions.
Buying cheap in one place and selling higher in another.
Arbitrage:
The price of something in money terms (e.g., $10).
Nominal price
Adjusted for inflation, showing its true buying power.
Example: Minimum wage may increase in dollars but still buy less due to inflation.
Real price:
