Chapter 1 - Scarcity & Economic Costs Flashcards
Economics
The study of individuals’ behavior and the resulting effects on the allocation of scarce resources.
Scarcity
Exists when at zero cost the amount of goods that people want exceeds the amount available
Competition
Is the effort of individuals or groups of cooperating individuals acting to secure scarce resources desired by other individuals or groups
Voluntary exchange
Is the process where one individual offers something of value to another and in returns receives something of value
Market Economy
Is one in which private property rights exist and individuals engage in voluntary exchange. Market prices determine who gets what as well as what is produced
Command economy
Is one in which resources are publicly owned and central planning is used to coordinate economic activity
Opportunity cost
A particular good or action is the value of the best alternative forgone
Explicit costs
Involve outlays of money
Implicit costs
Do not involve explicit outlays of money but rather the implicit forgoing of some money or benefit
Economic costs
Include both explicit and implicit costs that are not sunk, measure the value of the forgone opportunities
Sunk costs
Are unavoidable and therefore play no role in decision-making
Positive economics
Concerns the economic consequences of certain conditions, actions, or behavior
Normative economics
Deals with what economic actions should be taken
Theory
A set of abstract statements that can be used to understand and predict a wide range of behavior
Economic model
Simplifies a part of the economy to isolate the key underlying conditions and behavior relevant to understanding the determinants of certain economic variables and consequences of particular actions
