Chapter 1 Flashcards
Why Study Economics?
- Scarcity and Efficiency
- Micro and Macro Economics
- Avoid fallacies
- Normative and Positive Economics
What is Economics?
The study of how society allocates and uses scarce resources to provide goods for people.
What is Scarcity?
When a resource is limited relative to the desire.
Example: clean air/ water, time.
What is Efficiency?
Most effective use of resources to meet the needs .
Microeconomics
Looks at the small building blocks of a larger system. Studies the behavior of individual industries, firms and households. (e.g. how prices for a specific product are set)
Macroeconomics
Focuses on broader questions. Studies the economy as a whole. (e.g. unemployment rate in a country)
Post hoc fallacy
Occurs when it’s assumed that one event caused the other, just because it occurs afterwards.
Failure to hold other things constant
When making a causal relationship, everything else has to remain constant.
Fallacy of composition
Assuming that something will work for everyone just because it worked for one person.
Positive Economics
Uses statistics and facts.
Normative Economics
Involves value judgements.
Market Economy
All decisions are made by individuals and private firms.
Command Economy
All decisions made by the government.
Mixed Economy
Decisions made by both the government and individuals/ private firms. Uses elements of both market and command economies in decision making.
What are the three categories of input?
Land, labour and capital.
