Chapter 1 Flashcards
Economics
the discipline that studies how efficient decisions are made
Efficient decisions
involve choosing the most valuble alternative
theory of revealed preference
These models assume that the preferences of consumers can be revealed by their purchasing habits.
characteristics of value
- Value depends on the situation
- Value is different for different people
- Subsequent units of the same good have less value.
optimal arrangement principle
The idea that we first choose the best, then the second best, and so on…ex: subsequent laborers
value of something to an individual
the most that individual is willing to sacrifice to obtain that something. Or, if the individual owns that something, its value is the least the individual is willing to accept in exchange for that something.
Cost
is the value of the next best alternative which is sacrificed when a decision is made. (All decisions have at least 2 alternatives)
Macroeconomics
is a branch of the economics field that studies how the aggregate economy behaves.
No Free Lunch Principle
All decisions have a cost…it is impossible to get something for nothing
Scarcity
Having many more wants than our
resources can satisfy
Marginal Value
“the value of the individual units of that something”…
is the change in the total value created by the change in quantity of the control variable.
marginal analysis
an examination of the additional benefits of an activity compared to the additional costs incurred by that same activity. Companies use marginal analysis as a decision-making tool to help them maximize their potential profits.
Law of Diminishing Returns
used to refer to a point at which the level of profits or benefits gained is less than the amount of money or energy invested.
Demand
the relationship between the possible prices of something and the quantities people are willing to
buy, all things being equal.
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.
equilibrium price
the market price where the quantity of goods supplied is equal to the quantity of goods demanded
Social Gain Equation
Social Gain = Total Value - Total Cost
Consumer’s Gain Equation
Consumer’s Gain = Total Value - Total Amount Paid
Producer’s Gain
Producer’s Gain = Total Amount Paid - Total Cost
the economic problem
an economy’s finite resources are insufficient to satisfy all human wants and needs.
