Chapter 1 (intro to economics) Flashcards
The economic problem highlights 3 questions that any society must answer:
What goods and services should be produced?
* How should they be produced?
* Who will get them?
=> An economic system shows how resources are organised and allocated
- Planned economic system (command economy, communist system) =>
- Capitalist economic system (market economy) =>
Planned economic system (command economy, communist system) => Economic activity is organised by a central planner
- Capitalist economic system (market economy) => Factors of production are privately owned
Efficiency =?
Equity = ?
Efficiency = society gets the most it can from its scarce resources
Equity = distributing economic prosperity fairly among the members of a society
Principle 1
People face trade-offs when making decisions (= the loss of benefits from a decision to sacrifice one option,
balanced against the benefits incurred from the choice made. Making decisions = comparing costs and benefits of actions).
Principle 2
People face trade-offs when making decisions (= the loss of benefits from a decision to sacrifice one option,
balanced against the benefits incurred from the choice made. Making decisions = comparing costs and benefits of actions).
Principle 3
People think at the margin, they make decisions by evaluating the costs and benefits of marginal changes
Principle 4
People respond to incentives (to changes, e.g. threat of fine, price on plastic bags at supermarkets, …)
Neo-classical economics
decision-makers are rational. Criticized because people don’t always know all alternative options or
sometimes do inconsistent choices.
Positive analysis=?
Normative analysis=?
Positive analysis = describe the world as it is, e.g.: the lower unemployment benefits results in less unemployment
Normative analysis = prescribe how the world should be (recommends what people/the gov should do), e.g.: the gov
should lower unempl. benefits.
