Chapter 1 Flashcards
Economics
the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity, the incentives that influence those choices, and the arrangements that coordinate them.
2 main areas of economics
Microeconomics and Macroeconomics
Microeconomics
The study of the choices that individuals and businesses make and the way these choices interact and are influenced by governments.
Macroeconomics
The study of the aggregate (or total) effects on the national economy and the global economy of the choices that individuals, businesses, and governments make
invisible hand
The notion that free markets tend to regulate themselves by means of competition, supply and demand, and self-interest.
Self-Interest
refers to the choices that are best for the individual who makes them.
Social Interest
refers to the choices that are best for society as a whole.
six ideas that define the economic way of thinking
A choice is a tradeoff; A cost is what you must give up to get something; A benefit is what you gain from something; People make rational choices by comparing benefits and costs; Most choices made are at the margin; Choices respond to incentives.
Opportunity Cost
is the cost of the best alternative to a decision
2 types of opportunity costs
Income costs and time costs
The Benefit from something
is the gain or pleasure that it brings, measured by what you are willing to give up to get it.
A choice on the margin is a choice that is
made by comparing all the relevant alternatives systematically and incrementally; we look at marginal cost and marginal benefit.
Marginal cost
what you must give up to get one additional unit of a good or service
Marginal benefit
measured by what you are willing to give up to get one additional unit of a good or service
