Chapter 1: The Big Ideas of Economics Flashcards
Define Scarcity
When the supply of a resource does not satisfy the demand.
Define Economics
the study of how society allocates its scarce resources
Explain Example
Big Idea 1: Trade-offs are Everywhere
Explain: In order to do something you have to sacrifice something else
Example: For every hour spent studying one class you give up an hour studying another class
Explain Example
Big Idea 2: The True Cost of Something is its Opportunity Cost
Explain: what you lose in order to gain something else in terms of relevance
Example: The opportunity cost for attending university is the money that could have been made from a job during that duration
Explain Example
Big Idea 3: Thinking at the Margin
Explain: Comparing the costs and benefits of doing a little more of an activity versus doing a little less. Very effective for making appropriate “how many” decisions.
Example: Deciding how much time to spend studying versus working in a given week.
Explain Example
Big Idea 4: People Usually Respond to Incentives
Explain: The behaviour or characteristics of an economy is largely based on the incentives placed upon individuals.
Example: individuals have an incentive to get a job because their compensation allows them to survive and participate in an economy.
Explain Example
Big Idea 5: Trade Can Make Everyone Better Off
Explain: trade allows people to specialize and trade with others to buy a large variety of goods and services at lower costs.
Example: the global economy consists of countries which sell specialized products for specialized products from another country.
Big Idea 6: Markets are Usually a Good Way to Organize Economic Activity
Explain: market economy is one where resources are allocated by the decentralized decisions of many businesses and people as they interact in markets for goods
Define Markets
a group of buyers and sellers (need not be in a single physical location).
“Organize economic activity” means determining:
- what goods to produce
- how to produce them
- how much of each to produce
- who gets to consume what
Explain Define
Big Idea 7: Governments Can Help When Markets Don’t Work Well
Explain: when markets do not correctly align self-interest with social interest, governments can sometime improve the result by changing incentives with laws, regulations, taxes, and subsidies.
