1.1 Foundation of Economics Flashcards
Social Science
Collect data to back up hypothesis
Social Scientific Method
Develop hypothesis
Model Building
Construct a system to explain a hypothesis
Basic Economic Problem
To satisfy unlimited wants with limited resources
Factors of Production
Land
Labour
Capital
Entrepreneurship/Enterprise/Management
Positive Statement
refers to statement of fact
Normative Statement
refers to statement of opinion
Rational Decision Making
You have a reason for making a decision. The choice as a consumer should be based on rational decision making. Should follow a logical sequence of events that led you to that choice
Infinite vs Finite
unlimited/limited
Need
goods that are essential to survival
e.g. food water etc
Want
A want satisfies a desire and has usefulness (utility)
- unlimited
- they are complimentary
- Reoccuring
What is a resource?
Something we use to produce something else
- Limited
- Accessible
- Has to exist
3 Basic Economic Questions
Economics is a study of how we make choices
- What to produce?
- How much to produce and how?
- For whom to produce?
^= Rational Decision Making
Economics is…
A social science which studies human behavior and the way in which we choose among the alternate use of scarce resources to satisfy wants
Equity
The concept or idea of fairness for different people in different groups.
Efficiency
Making the best possible use of scarce resources to produce the combination of goods and services optimum for society, thus minimizing resource waste.
Economic Well - Being
A multi - dimensional concept relating to the level of prosperity and the quality of living standard enjoyed by members of the economy.
Intervention
Government involvement in the workings of markets to achieve certain societal goals, such as equity, economic well being or sustainability.
Sustainability
The ability of the present generation to meets its needs without compromising the ability of future generations to meet its own needs. The degree to which economic activities of the current generation create harmful environmental outcomes.
Choice
This results from scarce resources being unable to satisfy all human needs and wants.
Scarcity
A central concept in Economics which refers to the limited availability to economic resources relative to society’s unlimited demand for goods and services.
Interdependence
Consumers, firms, households, workers, and governments (all economic actors) interact with each other within and increasingly, across nations in order to achieve economic goals. This leads to dependence upon one another.
Change
The economic world is in a continual state of flux and economists must be aware of this and adapt their thinking accordingly.
Demand
The quantity of goods and services that consumers are willing and able to buy at each possible price over a given time.
Law of Demand
As price increases, quantity demanded decreases, ceteris paribus
Inferior Good
As income increases, demand decreases
e.g. public transport
As price increases, quantity demanded decreases
Consumer (Final) Good
Goods that are consumed to satisfy wants
Ceteris Paribus
All other things held equal.
Opportunity Cost
The next best alternative forgone (not chosen/given up)
Capital (Intermediate) Good
Goods use to produce other goods
e.g. computer
Economic Good
A goods or service that can command a price
Microeconomics
Is the study of individual markets
Macroeconomics
is the study of the economy as a whole
Global Economics
is the study of all markets and how they interact = trade between firms/markets/countries
Free Good
Abundant
0 price
0 oppurtunity cost in production
Normal Good
as income increases, demand increases
e.g. luxury cars
as price increases, quantity demanded decreases
Giffen Good
A giffen good is an inferior good where the substitution effect outweighs the income effect. As price increases, demand also increases.
Veblen Good
A veblen good is a status good or a snob good where as the price increases, quantity demanded also rises.
Free Market
When the government doesn’t intervene
Don’t put taxes, restrictions, laws
The free market is left to the producers to decide
Planned Economy
When you tell the economy what to do and when
Has a central unit to decide how much to produce and when and price and everything
How do Economists build models?
Develop a theory, collect data to support theory
Then test it out in different circumstances
What assumptions do they make?
Most are made with ceteris paribus
That’s why most a flawed though
