Chapter 1 Flashcards
(22 cards)
Scarcity
the inability to get everything we want. This is universal.
Incentive
A reward that encourages an action or a penalty that discourages one.
● Example: Prices of goods
Economics
A reward that encourages an action or a penalty that discourages one.
● Example: Prices of goods
Microeconomics
The study of small-scale economic events that impact individuals and firms in society.
Macroeconomics
The study of large economic phenomenon like national economies and global economic stability.
Two big questions in economics
- How do choices end up determining what, how, and for whom goods are
produced? - When do choices made in self-interest also promote social interest?
Goods and services
Objects that people value and produce to satisfy human wants
Factors or production
the resources businesses use to produce goods and services. ● Land – earns rent ● Labour – earns wages ● Capital – earns interest ● Entrepreneurship – earns profit
Self-interest
People make choices in support of their own interests with the goal of advancing their own agendas
Social Interest
An outcome is in the social interest if it benefits society as a whole.
Efficient
An everyday situation that cannot be improved upon
Tradeoff
an exchange, giving up something to gain something else.
Globalization
expansion of foreign trade, borrowing and lending, and investment.
Market Capitalism
The market is free for individuals to buy and sell goods and services.
● Adam Smith said that an INVISIBLE HAND existed that promoted social interest
by corporations competing against each other in their self-interests
Centrally planned socialism
Government controls the means of production and
determines the direction of the economy.
● Karl Marx and other theorists supported these ideas
● The modern-day Occupy Wall Street movement advocates to ideas similar to
these (redistribution of wealth, greater corporate regulations, etc.)
MIXED ECONOMY
The MIXED ECONOMY combines these two ideas(Centrally planned socialism and Market Capitalism) and is most prevalent in the
economies of developed countries, including Canada.
Six economic ways of thinking
- Choice is a tradeoff
- People make rational choices by comparing benefits and costs
- Benefit is what you gain from something
- Cost is what you must give up for something
- Most choices are how much choices made at the margin
- Choices respond to incentives
OPPORTUNITY COST
OPPORTUNITY COST is the cost of the highest valued alternative to a decision.
● All tradeoffs involve an opportunity cost
Marginal Benefit
The benefit that arises from an increase in an activity.
When individuals make choices they make them at the MARGIN – comparing the
benefit of a little bit more of something with its cost.
Positive Statement
What it is. Generally, policy statements or other statements that can
be supported by facts (either proven or disproven).
Normative Statement
What it ought to be. These statements cannot be proven or
disproven and generally tend to be subjective statements depending on the individual.
ECONOMIC MODELS
ECONOMIC MODELS are used to explain the economic world.
