Chapter 1 Flashcards
Economics
Discipline that studies how efficient decisions are made
Efficient Decisions
Choosing the most valuable alternative
Theory of Revealed Preference
Our choices reveal our values
3 Characteristics of Value
- Value depends on the situation
- Value is different for different people
- Subsequent units of some good have lesser value
Optimal Arrangement Principle
The most valued good is always our first choice, the next most valued is our second, and so on.
Value of something to an individual
What one is willing to sacrifice or exchange in order to acquire something else
Why do we value money?
We value money for what we can get in exchange with it.
Cost
Value of the best alternative that we sacrifice when an economic choices made
No Free Lunch
Decisions have at least two alternatives and one must be chosen and one must be sacrificed. The alternative that we sacrifice involves cost due to us sacrificing it.
Macroeconomics
Study of all economies using concept of total output, national debt, unemployment rates, and total investments. It is the LARGE study of economy!
Scarcity
When there is more wants than resources to satisfy those wants
Goods
Roads, computers, cars
Services
Police protection, firefighters
Marginal Value
Value of an individual unit
Marginal Analysis
Relationship between economic variables (cost & value).
Marginal value is at least as great as marginal cost.
Law of Diminishing Returns
Adding more individuals to a work area decreases productivity due to the excess of people in the small work area.
Demand
Relationship between possible prices and quantities that people are willing to purchase
Supply
Relationship between possible prices and quantities people are willing to sell
Equilibrium Price
When supply and demand is intersects (is equal). Consumers can buy all they want and producers can sell all they want.
Social Gain (Marginal Social Gain)
SG=MV-MC
Social Gain= Marginal Value-Marginal Cost
Consumer’s Gain
Total Value-Total Amount Paid
Producer’s Gain
Total Amount Paid-Total Cost
Economic Problem
Allocating scarce resources to their best uses
Changes in supply…
Shift supply curve
Changes in demand…
Shift demand curve
Does destruction create profit ? (Bastiat’s Chapter 1)
According to Bastiat, destruction does not create profit. For example Bastiat gives us James Goodfellow and his broken window scenerio. Goodfellow cannot enjoy a new book, or another good, because he has to repair the window. When the window was destroyed, he had a loss. By fixing it, his money went to the repair instead of to a new manufacturer. The manufacturer was discouraged by Goodfellow giving his money to the repair shop, so he loss that income. There was no profit because the window was once good and by destroying there was a loss and by repairing it the economy received money, which just balanced it all out.
What does Bastiat say about different workers? (Chapter 4)
He says that different workers are taking into consideration at different levels. For example, thearetical jobs, which are for entertainment, are paid more than workers that are critical to our economy. He also says that taxing of the working class creates enough to pay another job (or class).
Should government subsidize Arts and Theatre? (Bastiat: Chapter 4)
No, because even though the theatre shapes some cultures and communities, it is only for entertainment. Government subsidizing could go towards something more valuable.
