Chap 1 Flashcards
Define econ
Economics is a social science which studies about efficient allocation of scarce resources so as to attain the maximum fulfillment of unlimited human needs
whats the basic problem of economy
Scarcity and choice
whats the scope of economics
industrial econ, transport econ, welfare econ , environmental econ,
By how many branches is the core of economy formed and what are they?
Its formed by 2 major branches : macroeconomics and microeconomics
Define Microeconomics
Microeconomics is concerned with the economic behavior of individual decision making units such as households, firms, markets and industries.
Define macroeconomics
its a branch of economics that deals with the
effects and consequences of the aggregate behavior of all decision making units in a certain economy.
By how many perspectives can economics be analyzed and what are they ?
economics can be analyzed from two perspectives: positive economics and normative economics.
Def Positive econ + ex
it is concerned with analysis of facts and attempts to
describe the world as it is.
The life expectancy at birth in Ethiopia is rising.
def normative econ + ex
its a perspective on economics that makes recommendations and that is not based on facts
It deals with the questions like, what ought to be? Or what the economy should be?
ex: The poor should pay no taxes.
what is the fundamental objective of economics?
The fundamental objective of economics, is the
establishment of valid generalizations about certain aspects of human behavior.
what are the 2 methods of logical reasoning ?
inductive and deductive
def inductive reasoning
its a logical method of reaching at a correct
general statement or theory based on several independent and specific correct statements.
What are the steps for inductive method
- selecting problem for analysis
- collection , classification, and analysis of data
- Establishing cause and effect relationship between economic phenomena
Def deductive reasoning
its a logical way of arriving at a particular or
specific correct statement starting from a correct general statement.
What are the steps in deductive reasoning
- problem identification
- specification of the assumptions
- formulating hypotheses
- testing the validity of the hypotheses
Define scarcity
refers to the quantity preferred of a particular resource exceeding the quantity available so to balance unlimited wants with limited resources economics has emerged to allocate economic resources efficiently.
what are the 3 important questions in that economy helps to solve ?
what , how and for whom to produce?
define choice?
it involves sacrifice and the choosing of the better alternative since the more food gets produced the less resources there will for the production of other goods
Def opportunity cost
its the cost of any activity measured in terms of the best alternative forgone.
how many categories of economic resources are there and what are they ?
There are 4:
1. Labor: wage
2. Land: rent
3. capital : interest
4. entrepreneurship: profit
what is PPF/PPC
Is a curve that shows the various possible combinations of goods and services that the society can produce given its resources and technology within a specified time period.
What are the 3 concepts that the PPF describes?
- The concepts of scarcity : unlimited amount of outputs cannot be reached even if all resources are utilized in the best possible way.
- the concepts of choice: when theres a change in choice, there is a movement of the curve
- the concept of opportunity of cost: he production of one good requires the sacrifice of another, its shown on the downward sloping PPF
Whats the law of increasing opportunity cost ?
This law states that as we produce more and more of a product, the opportunity cost per unit of the additional output increases.
what the formula of opportunity cost of a good?
OC= the amount of the next best alternative sacrified / the amount of the good gained
When does an economic growth occur?
if :
1. Increase in the quantity or/and quality of economic resources.
2.Advances in technology.
Def economic system ?
its a set of organizational and institutional
arrangements established to answer the basic economic questions.
How does capitalist economy work?
In this economic system, all means of production are privately owned, and production takes place at the initiative of individual private entrepreneurs who work mainly for private profit.
How does command economy work?
Under this economic system, the economic institutions that are engaged in production and distribution are owned and controlled by the state.
How does mixed economy work?
it is an attempt to combine the advantages of both the capitalistic economy and the command economy.
What are the 3 decision making units in a closed economy ?
households , firms and the government
what are the 2 markets that the 3 economic agents interact in?
Product market and factor market
What’s product market
it is a market where goods and services are exchanged
What’s factor market
In this market, owners of resources (households) sell their resources to business firms and governments
What’s the circular flow diagram
its a visual model of the economy that shows how money (Birr), economic resources and goods and services flows through markets among the decision making units.
