Chapter 1 Flashcards
Economics
The study of how society allocates its scarce resources to satisfy people’s unlimited wants.
Resources
Anything used to make something else
The four main categories of resources
Land, Labor, Entrepeneurship, & Capital
Scarcity
Quantities of resources at any time are limited
Economic rationality
People use the information they have to make the best decision for themselves
Perfect information
Everyone knows everything needed to make a decision (no risks)
Asymmetric information
Someone knows something someone else doesn’t
“At the margin”
Means to think incrementally which means you’ll come to the best decision with the information you have
Opportunity cost
The cost of everything given up to get something
Best forgone alternative
The next best thing that was given up
Total opportunity cost =
Opportunity cost of activity + best forgone alternative
Explicit cost
Upfront cost paid
Implicit cost
Lost cost from not participating in the next forgone alternative
Market
Where buyers & sellers come together to make trades
Free market
Absolutely no government is involved in the allocation of resources, private firms have full control of resource production
Centrally planned economy (or command economy)
Government has full control of resource production & allocation
Mixed economy
Private firms have control of resource production and allocation with government regulation involved
Microeconomics
Decision-making at the individual level about production between households & firms
Macroeconomics
Looks at the economy as a whole & the things that effect it (i.e. unemployment, inflation, etc.) but doesn’t look at specific industries
Positive statements
Are based on fact and are statements that are based on real information from the past (doesn’t have to be true)
Normative statements
Are based on opinion and use words like “could’ve”, “ “should’ve”, and “would’ve”
Flow of income
Measure how money flows through the economy
