Chapter 1: the Principles and practice of economics Flashcards
What is economics?
Economics is the study of the allocation of scarce resources
What is an economic agent?
any group tor individual that makes choices such as consumers, firms, parents, etc.
What is scarcity?
The idea that resources are limited
What does economics study?
How agesnts make choices among scarce resources and how those choices affect society
What is a positive statement?
describes what people actually do
What is a normative statement?
describes what people should do
What are the 3 principles of economics?
- Optimization
- Equilibrium
- Empiricism
What is optimization?
making the best choice possible
What is equilibrium?
when everyone is optimizing; no one would be better off with a different choice
What is empiricism?
Using data to figure out answers to interesting questions
3 equilibrium conditions in long run for competitive markets
- amount produced by sellers
2. sellers only produce to extent costs
What is the free rider problem?
Exists when an individual or group is able to enjoy the benefits of a situation without incurring costs
