Ch.1 Basic Economic Concepts Flashcards
What is economics?
Economics is a social science that studies, analyses and predicts human behaviour. Economics studies how human beings allocate limited resources to satisfy unlimited wants.
What is scarcity?
Scarcity is the situation in which the limited resources are insufficient to satisfy our unlimited wants. Scarcity of resources is the constraints on our decision making.
What concept is scarcity in?
Scarcity is a relative concept. We need to compare the availability of resources against people’s wants in order to determine whether there is scarcity.
What is microeconomics?
Microeconomics analyses the behaviours of individuals and firms.
What is macroeconomics?
Macroeconomics analyses the operations of the economy as a whole.
Is there scarcity in one-man economy?
There is still scarcity but there is no competition.
What does scarcity implies?
Scarcity implies to choices and choices implies cost. Besides, scarcity also implies competition and competition implies to discrimination.
What does people need to make when scarcity exists?
Choices
What is the definition of competition?
The process of separating winners from losers.
What does price competition mean?
Those who are willing and able to pay the market price can get the resources or goods.
What does non-price competition mean?
People compete for resources or goods on the basis of factors other than price like first come first served.
What is opportunity cost?
It is the highest-valued option forgone.
What is full cost?
Full cost means money cost plus non monetary cost.
What is sunk cost?
The past expenditures which is non recoverable and do not represent any options to be forgone
How does the value of chosen option change the opportunity cost?
The change in value of chosen option does not change the cost.
What does interest mean?
It means cost of earlier availability of resources (to borrower) or compensation received for deferred consumption of the resources (to lender).
Does interest exist without money?
Yes, it can exist without money like barter economy or banking system or risk.
What are the factors of an economic good?
1.Involves production cost which requires scarce resources having alternatives uses.
2.More of it preferred .
3. It implies scarcity.
4. People compete for it.
What are the factors of a free good?
1.It does not have production cost.
2.More of it is not preferred depends on the situation.
3.Nobody is willing to pay a price for it.
4.There is no implication of scarcity.
What are the two basic economic units?
A firm is the basic unit of production. A household is the basic unit of consumption.
What are the two markets?
Product market is a market for exchanging final goods and services between the household and the firm. Factor market is a market for exchanging factors of production between the household and the firm.
What is the real flow?
Final goods and services flow from the firm to the household, while factors of production flow from the household to the firm.
What is the money flow?
The money that the firm pays for the factors of production is the cost of production to the firm, which becomes the factor income of the household.
What does positive statement mean?
It means no value judgement, they are testable and refutable.
What does normative statement mean?
It means judge statement, they are non-testable and non-refutable.
What are the terms for normative statements?
should, ought to, the best, good
