Chapter 1 - Key Economic Concepts Flashcards
what is economics?
-science of choice
- study of choice under scarcity
faced by consumers, businesses, gov, countires, and so on
what is scarcity?
resources are limited, not all wants are met,
what is opportunity cost?
value of the next forgone alternative
explicit cost: costs that involve direct payment
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Implicit cost: opportunity forgone that don’t have explicit cost
what does OC involve?
only include costs that could change if different decision made
doesnt include sunk costs
what is sunk cost?
costs that have been incurred and cannot be recovered no matter what. e.g. time spent doing something, or money spent from last year
what are the key issues that need to be addressed in economy?
(a) what to produce;
(b) how to produce it; and
(c) who should get what is made.
what is a market?
a place where buyers and sellers of a particular good or service meet
what role does gov play?
play a critical role in markets, imposing taxes and regulations
what does marginal mean?
additional or extra. We use the term repeatedly in economics
marginal benefit?
(for a extra unit consumed for an individual)
marginal cost?
(additional cost of buying one more unit).
marginal analysis?
effect of small increase/decrease in margin
additional cost/benefit of any action
what is ceteris paribus?
To isolate the impact of one factor, economists examine the impact of one change at a time, holding everything else constant
what is correlation?
when two or more factors are observed to be moving up, down in the opposite directions together
what is causation?
– a change in one variable brings about, or causes, a change in another variable
gains from trade?
A basic tenant of economics is that trade makes people better off.
Trade helps allocate goods to those who value them most. This is the gains from exchange
what does trade also allow for?
take advantage of gains from specialization, reducing overall costs of producing and increasing output
what is PPF graphs?
the output that an individual (or a country) can produce for a particular set of resources.
absolute advanatge?
produce greater number of goof
comparative advantage?
opportunity cost of producing that good is lower
why is trade beneficial?
Trade is beneficial to individuals (and indeed countries) because it allows them to specialize in industries where they have the comparative advantage, and trade with others for things that would cost them more to produce personally
