Chapter 1 Flashcards
our inability to satisfy all our wants
scarcity
a reward that encourages an action, or a penalty that discourages one
incentive
the social science that studies the choices that individuals, businesses, government, and entire societies make as they cope with scarcity and that influence and reconcile those choices
economics
the study of the choices that individuals and business make, the way these choices interact in the markets and the influence of governments
microeconomics
the study of the performance of the national economy and the global economy
macroeconomics
the objects that people value and produce to satisfy human wants
goods and services
physical things that people value and are probably willing to pay money for…though they may not have to pay
goods
tasks that accomplish something for people, and which people are willing to pay money for…though they may not have to pay
services
knowledge and skills that increases the productivity of labor is
human capital
considering all the available options and making the best decision for you, based on your own feelings and preferences
self-interested
the best imaginable outcome would be everyone to have infinity of all goods and services
social interest
work time and work effort that people devote to producing goods
labor
the tools, equipment, buildings, and other constructions that businesses use to produce goods and services
capital
the human resource that organizes the other three factors of production: labor, land, and capital
entrepreneurship
the income that land earns
rent
the income that capital earns
interest
the income earned by entrepreneurship
profit
resource us is this if it is not possible to make someone better off without making someone else worse off
efficient
expansion of international trade, borrowing, lending, and investment
globilization
an economic system in which individuals own land and capital and are free to sell land, capital, and goods and services in markets
market capitalism
an economic system in which the government dominates
centrally planned socialism
market capitalism with government regulation
mixed economy
a constraint that involves giving up one thing to get something else
tradeoff
a choice that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice
rational choice
the benefit of something is the gain or pleasure that it brings and is determined by preferences
benefit
a description of a person’s likes and dislikes and the intensity of those feelings
preferences
the highest-valued alternative that we must give up to get something
opportunity cost
when a choice is made by comparing a little more of something with its cost
margin
the benefit that a person receives from consuming one more unit of a good or service; it is measured as the maximum amount that a person is willing to pay for one more unit of the good or service
marginal benefit
the opportunity cost of producing one more unit of a good or service
marginal cost
marginal cost equation
the increase in total cost divided by the increase in output
a description of some aspect of the economic world that includes only those features of the world that are needed for the purpose at hand
economic model
a graph that plots the value of one variable against the value of another variable for a number of different outcomes
scatter diagram
a relationship between two variables that move in the same direction
positive relationship/direct relationship
a relationship shown by a straight line
linear relationship
variables that move in opposite directions
negative/inverse relationship
behavior/social sciences examples
Psychology: 300 BC
Sociology: 1300s-1700s
Anthropology: 1700s
Economics: 1776 Adam Smith’s The Wealth of Nations
What makes economics different from other social and behavioral sciences
economics is particularly concerned with the choices people make, response to scarcity, and the incentives people face
examples of the choices that people make
what they buy, how much education they get, whether they smoke cigarettes
examples of scarcity
food people eat and available dorm rooms
examples of incentives people face
high gas prices, this might make me sick, my mom will be furious
two different types of economics
microeconomics: individual people, businesses, or industries and the influence of government on people and businesses (whether a high school senior skips class, prices and quantities of minivans sold in 2018, how a tax on cigarettes will affect teen smoking rates)
macroeconomics: national economics or the global economy (unemployment rates in China vs the US, the value of everything produced in Canada in 2018, how much stuff can you buy with $1 today versus in the 1950s)
Two Big Economic Questions
- What, how, and for whom
2. Do choices made in the pursuit of self-interest also promote the social interest?
Is it possible to do something that increases how productive one hour of your labor can be?
Yes
How do we produce those goods and services?
- Land: natural resources, anything provided by nature (field, oil, water, and air)
- Labor: Physical and mental effort of humans
- Capital: non-human tools, buildings, machines, etc. that are used to produce goods and services
- Entrepreneurship: the development of new ideas about how to organize land, labor, and capital to create things of value
Once those goods and services are produced, who gets to have them?
- land earns rent
- labor earns wages
- capital earns interest
- entrepreneurship earns profit
All of these make up someone’s income, which they can use to buy the goods and service they want.
Earning more income equates to being able to buy more stuff, and more expensive stuff
What question
what we produce varies across countries and changes over time
how question
how we produce is described by the technologies and resources we use
for whom question
who consumes the goals and services that are produced depends on the income that people earn
Who earns the most income
labor
Is social interest possible?
No, because we live in a world of scarcity
Two key concepts help us think about what is actually in the social interest
efficiency and faireness
Examples of issues that promote self-interest over social interest
- globalization
- information-age monopolies
- climate change
- COVID pandemic
Economic way of thinking
- a choice is a tradeoff
- people make rational choices by comparing benefits and costs
- benefit is what you gain from something
- cost is what you must give up to get something
- most choices are “how much” choices made at the margin
- choices respond to incentives
Central idea of economics
we can predict the self-interested choices that people make by looking at the incentives they face
might be right or wrong, but we can test it by checking facts
positive statement: must test positive statements
what ought to be, depends on values and cannot be tested
normative statement (we ought to cut our use of coal by 50%)
Jobs for economists
market research analyst: 57%
financial analyst: 37%
budget analysis: 4%
economist: 2%
market research analyst
works with data on buying patterns and tries to forecast the likely success of a product and the price that buyers are willing to pay for it
financial analyst
studies trends, fluctuations in interest rates, stocks, and bond price, tries to predict the cost of borrowing, and returns on investements
if all other relevant things remain the same
ceteris paribus
Skills for economic jobs
critical thinking skills analytic skills math skills writing skills oral communication skills
Patterns to look for in graphs
variables move in the same direction
variables move in opposite directions
variables have a maximum or a minimum
variables are unrelated
vertical line
x constant
horizontal line
y constant
