Chapter 1: Economic Principles 1-4 Flashcards
What is economics?
- social science
- economics study the choices people make, why they do it, and how choices interact
What is individual choice?
- the decision by an individual of what to do, which necessarily involves a decision of what NOT to do
ex. wearing a sweatshirt to work
What are the 4 basic principles of individual choice?
- resources are scarce
- The real cost of something is what you must give up to get it
- “How much?” is a decision at the margin
- People usually take advantage of opportunities to make themselves better off
What is a resource?
- anything that can be used to produce something else
What are the 4 examples of resources?
- Land
- Labour - number of ppl able to work
- Capital - physical (roads, buildings, etc)
- Human Capital - quality of edu + skills ppl have
Is money a resource?
- no, it is earned with time
What is it meant by “resources are scarce?”
- the quantity available isn’t large enough to satisfy all productive uses
ex. petroleum, lumbar, intelligence, time
The true cost of an item is its ___ ____
opportunity cost
What is opportunity cost?
What you give up in order to get an item
ex. what is the cost of your university degree?
What are the 2 types of costs?
- direct (monetary exchange)
- implicit (value of what you are giving up)
all costs are OC
What is the next best alternative?
- What you will do if you cannot do the first thing
ex. If you did not go to uni, you would be working full time making money
When you ask the question “How much?” you are making a decision at the margin. What does this mean?
- You make a trade-off when you compare the costs with the benefits of doing something
What are marginal decisions?
- decisions about whether to do a bit more or a bit less
What is marginal analysis? (2)
- Making trade-offs at the margin
- comparing the costs and benefits of doing a little bit more of an activity versus doing a little bit less
ex. hiring one more worker, studying one more hour
What do people usually respond to, and why?
- incentives
- exploit opportunities to make themselves better off
What are incentives?
- anything that offers rewards to people who change their behaviour
ex. prices of gas rise, people buy more fuel-efficient cars
ex. More well-paid jobs for uni students with economics degree, more students major in economics
What do incentives change?
- change in human behaviour
- intentional and unintentional change
What is an unintentional behaviour change? just give an example
Changing maternity leave
- younger kids in kindergarden cuz ppl get pregnant at a certain time
- as opposed to intentional behaviour change, where point of policy is to change behaviour
What does a good social order align with?
- aligns self-interest with social interest