Chapter 1 Flashcards
Define economics
Economics is the study of how we decide what to do with the limited resources available.
What is microeconomics?
Focuses on the interactions of individuals - how individual firms and consumers maximize their welfare.
What is macroeconomics ?
The part of economics concerned with large scale or general factors such as interest rates and national productivity
The 3 fundamental ideas ?
- ) people are rational
- ) people respond to incentives
- ) optimal decisions are made at the margin
What does marginal mean in economics?
Additional
What is marginal analysis?
Analysis that involves comparing marginal benefits and marginal cost
What is scarcity ?
The situation in which unlimited wants exceed the limited resources available to fulfill those wants
What is a Trade-off ?
The idea that , because of scarcity producing more of one good or service means producing less of another good or service
What is Opportunity cost ?
The highest valued alternative that must be given up to engage in an activity
What is a centrally planned economy ?
An economy where there is an organized plan for how to use resources, the government decides how to allocate resources typically this is a dictatorship or communist country
What is a market economy ?
Where the three fundamental questions are made by consumers and firms acting on there own interest
What is a Mixed Economy ?
An economy in which allocation decisions are made by house holds and firms but also where the government also plays a significant role in the allocation of resources
What is Allocative efficiency ?
The situation where goods and services are produced in accordance with consumer preferences
What is Productive Efficiency ?
The situation where goods and services are produced to the lowest possible cost
What is Equity ?
It’s the fair distribution of economic benefits
