Chapter 1: Foundations And Models Flashcards
Scarcity
A situation in which unlimited wants exceed finite resources
(Spending money on tuition or travelling the world)
Economics
The study of the choices people make to attain their goals, given scarce resources
Economic model
A simplified version of reality used to analyze real-world economic situations
Market
Group of buyers and sellers of a good or service and the institutions or arrangements they come together with to trade
(Men having a meeting at a race track)
Marginal analysis
Analysis that involves comparing marginal benefits and marginal costs
Trade offs
The idea that because of scarcity, producing more of one good or service means producing less of another good or service
(To do one thing, you’ll lose another)
Opportunity cost
The highest valued alternative that must be given to engage in an activity
(Opportunity cost of studying one extra hour, depends what you would have chose to do if not studying, watch tv perhaps)
Centrally planned economy
An economy in which the government decides how economic resources will be distributed
Market economy
An economy in which the decisions of households and firms interacting in markets decide economic resources
Mixed economy
An economy in which most economic decisions result from the interaction of buyers and seller in markets, but in which the government plays a significant role in the distribution of money
Productive efficiency
A situation in which a good or service is produced at the lowest possible cost
Allocative efficiency
A state of the economy in which production is in accordance with consumer preferences, in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it
Voluntary change
A situation that occurs in markets when both the buyers and sellers of a product are made better off by the transaction
Equity
The fair distribution of economic benefits
Economic variable
Something measurable that can have different values, such as the price of coffee
Positive analysis
Analysis concerned with what is
Deals with the profitable portions of economics
Normative analysis
Analysis concerned with what ought to be
Deals with the costly potions of economics
Microeconomics
The study of how households and firms make choices, how they interact with markets, and how the government attempts to influence their choices
Macroeconomics
The study of the economy as a whole, including topics such an inflation, unemployment, and economic growth
Production
Process of making goods and services, often under take by entrepreneurs
Entrepreneur
Someone who operates a business
Invention
Development of a new good or a new process for making a good
Innovation
Practical application of an invention
Technology
Process used to turn inputs into outputs (eg. Goods and services)
