CH 1 Economics & Economic Reasoning Flashcards
the study of how many beings coordinate wants & desires, given the decision-making mechanism, social customs, & political realities of the society
Economics
Three central coordination problems any economy must solve:
- What, and how much, to produce
- How to produce it
- For whom to produce it
- ________ exists because individuals want more than can be produced.
- _______ means the goods are too few to satisfy individual’s desires. “
- “You can’t always get what you want”
- The quantity of goods, services and usable resources depend on technology and human action
Scarcity
Steve Levitt’s bestseller
Freakonomics
We use ________ _________ by comparing marginal benefits
economic reasoning
________ ____ is the additional cost over and above cost already incurred
Marginal cost
________ _______ is the additional benefit above and beyond what has already accrued
Marginal benefit
(Economic decision rule:) if the marginal benefits of something exceed the marginal costs, __ __.
do it (MB > MC -> Do it!)
(Economic decision rule:) If the marginal cost of doing something exceed the marginal benefits, _____ __ __.
don’t do it. (MC > MB -> Don’t do it!)
Optimal Output
MC = MB
- ___________ ____ is the benefit forgone of the next-best alternative to the activity you have chosen.
- ___________ ___ is the basis of cost/benefit economic reasoning.
- Involves a trade off
Opportunity cost
- Individuals decisions - example college
-the ____________ ____ of college includes:
*items you could have purchased with the money spent for tuition & books
*Loss of the income from a full-time job - Government decisions
-Pandemic Stimulus Checks
-What is the ___________ ____?
Opportunity cost
-A market economy, through the price mechanism, will allocate resources efficiently
-Prices will adjust to bring market back to equilibrium
-Explains how market will bring buyers & sellers together at the price where quantity demanded equals quantity supplied
The Invisible Hand Theory
-based on how consumers, firms and governments act
Economic theory
-simplified way to examine the economy– can be a graph or equations
Economic model
-general assumption
*Ex: Law of demand
Economic principle
*Economic statements that are factual
Positive economics
*Economics statements that involve value judgements
Normative economics
