Chapter 1 Flashcards
(32 cards)
Economics is
the study of how efficient decisions are made
Efficient decisions involve
choosing the most valuable alternative
The characteristics of value are?
- value depends on the situation
- different people have different values
- subsequent units of the same good have less value
Why do subsequent units have less value?
Optimal arrangement principle; appetites get more satisfied as more is consumed
How do you measure the value of life to an individual?
find out how much money a worker will accept to do a more dangerous job
No free lunch means
any decision has at least 2 alternatives, so any decision involves cost
Optimal arrangement principle
the idea that we first choose the best, then the second best, and so on
Theory of revealed preference
our choices reveal our values
Value of something to an individual is
the most that an individual is willing to sacrifice to obtain that something
cost
the value of the BEST alternative which is sacrificed when a decision is made
Macroeconomics
the study of entire economics, using concepts like total output, the unemployment rate, the national debt, total investment, etc
Scarcity
when we have many more wants than our resources can satisfy
Marginal value
value of the individual units of that something
Marginal analysis
yes
Law of Diminishing Returns
as we add workers to a production facility, eventually they become less productive because there’s no way for everyone to take part in the production process; as production increases, marginal cost rises
Demand
the relationship between the possible prices of something and the quantities people are willing to buy, all things being equal
The DEMAND curve is the same as
the marginal value curve
Demand can change if
either more or fewer people are in the market or if the individuals already in the market have higher or lower values
Supply
the relationship between the possible prices of something and the quantities that people or firms are willing and able to sell, other things equal
Social gain
Total value- total cost
and
consumer gain+producer gain
Consumer gain
Total value- total amount paid as price
Producer gain
total amount paid- total cost
Why does marginal cost rise as more is consumed?
optimal arrangement principle
How are decisions made using marginal analysis?
Take an action if and only if the marginal value is as great as the marginal cost
