Chapter 1 Concepts and Terms Flashcards
Economics
the discipline that studies how efficient decisions are made
Theory of Revealed Preference
your choices reveal your values
Characteristics of Value
value depends on the situation; value is different for different people; subsequent units of the same good have less value
The Optimal Arrangement Principle
the idea that we first choose the best choice (based on what is most valuable), then the second best, and so on…
How do we Measure Value?
The value of something to an individual is the most that individual is willing to give up to obtain that something.
Cost
the value of the next best thing that you give up when you make a decision (may or may not involve spending money)
No Free Lunch Principle
any decision involves cost; something is always sacrificed when a decision is made
Macroeconomics
the study of whole economies, using concepts like total output, the unemployment rate, the national debt, total investment…
Scarcity
we have many more wants than our resources can satisfy
Marginal Value
the value of the individual units of a good or service
Marginal Analysis
we consume each unit for which the marginal value is at least as great as the marginal cost
Law of Diminishing Returns
as we add more members to the workplace/a production facility, eventually they become less productive because there is no way for everyone to take part in the production process
Demand
the relationship between the possible prices of something and the quantities people are willing to buy, all things being equal - marginal value and demand curves are the same - DEMAND CAN CHANGE
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
What would happen with a Surplus?
producers would eventually have to lower their prices to get rid of the surplus
What would happen with a Shortage?
sellers see that they can charge more and still sell all they are producing
What happens at the Equilibrium Price?
consumers can buy all they want, at the same time, firms can sell all they want
Social Gain
the Total Value - Total Cost
How does Social Gain increase.
as long as the value of a unit is greater than the cost, the overall social gain increases as more is produced
What happens when the price is above/below the equilibrium price?
gain goes to the consumer; gain goes to the producers
The Economic Problem
allocating scarce resources to their best uses
What solves the economic problem?
free people, interacting in free markets
Changes in Supply
shifts in the supple curve; producers wish to produce more or less, even if the price does not change; CAUSED BY CHANGES IN THE PRODUCER’S COSTS
Changes in Demand
shifts in the demand curve; consumers wish to buy less or more, even if the price doesn’t change; caused by changes in things that influence the consumer’s willingness to purchase the product (have nothing to do with the price of the product)
The SEEN
the immediate effect; the first one
The UNSEEN
the subsequent effects, they must be FORSEEN
Destruction is NOT Profitable
if you break something to try and make an industry profit; society (the economy), is not profitable - it has lost the initial value of what is broken
Bastiat’s Feelings Toward Public Spending (Subsidies)
Subsidies are always a substitute for private spending, and that consequently it may well support one worker in place of another but adds nothing to the lot of the working class taken as a whole.
