Chapter 1: The Central Concepts of Economics Flashcards
What are the twin terms of economics?
Scarcity and efficiency.
What is economics?
Economics is the study of how societies use scarce resources to produce valuable goods and services and distribute them among different individuals.
What is the availability of economic goods?
Economic goods are scarce and are not free.
Economic efficiency:
Economic efficiency requires that an economy produces the highest combination of quantity and quality of goods and services given its technology and scarce resources.
Post hoc fallacy:
The post hoc fallacy (after this therefore because of this) fallacy is based upon the mistaken notion that simply because one thing happens after another, the first event was a cause of the second event. Post hoc reasoning is the basis for many superstitions and
erroneous beliefs.
Fallacy of composition:
The fallacy of composition arises when one infers that something is true of the whole from the fact that it is true of some part of the whole.
What is the main goal of the economic science?
The ultimate goal of economic science is to improve the living conditions of people in their everyday lives.
Command economy:
Directed by a centralized governmental control.
Market economy:
Guided by an informal system of prices and profits in which most decisions are made by private individuals and firms.
Extreme case: laissez-faire economy
What is the reality of countries concerning the type of economy?
In reality, all societies are mixed economies with different combinations of command and market economies.
Positive economics:
Questions can be resolved by reference to analysis and empirical evidence.
Normative economics:
Involves ethical precepts and norms of fairness. They can be resolved only by political debate and decisions, not by economic analysis alone.
Inputs:
Commodities and services that are used to produce goods and services → factors of production: land, labor, capital.
Outputs:
Various useful goods or services that result from the
production process and are either consumed or employed in further production.
What are the 3 economic problems?
- what outputs to produce, and in what quantity;
- how (with what inputs and techniques) to produce the desired output;
- for whom the output should be produced and distributed;
