Chapter 1: The Why and Who of Economics Flashcards
1. We all think like economists 2. The definition of economics and the features of the economic perspective 3. The role of economic theory, principles and models in economics 4. The distinction between microeconomics and macroeconomics 5. Positive and normative statements
Economics Definition
Economics is the study of how individuals, businesses and institutions make choices, to optimize their level of satisfaction under conditions of scarcity.
economic perspective definition
A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.
What 3 elements does the economic perspective consist of?
Purposeful behaviour
scarcity and choice
marginal analysis
marginal analysis
The comparison of marginal benefits and marginal costs, usually for decision making.
opportunity cost
The amount of other products that must be forgone or sacrificed to produce a unit of a product.
economic resources
The land, labour, capital and entrepreneurial ability that are used in the production of goods and services; productive agents; factors of production.
What does economists often assume about human behaviour and interest?
That they reflect rational self-interest.
Explain what it means for consumers to reflect rational self interest.
Consumers have the desire to maximize utility. These decisions however are not free from mistakes unaffected by emotions or feelings.
Define utility
The want-satisfying power of a good or service; the satisfaction or pleasure a consumer obtains from the consumption of a good or service (or from the consumption of a collection of goods and services).
Elements of optimal behaviour
- calculation
- negotiation
- expenditure
Define a rational producer
Producer who seeks to maximise profit of the firm they happen to run.
What does marginal mean to economists?
Extra, additional, or a change in
Define the scientific method
The procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation and testing of hypotheses to obtain theories, principles and laws.
Describe theories, principle and models in 3 words.
rational simplifications
Define economic principle
A widely accepted generalization about the economic behaviour of individuals or institutions.
What makes economic principles and models useful?
- They are useful in analysing economic behaviour and understnding how the economy operates.
- They are tools for ascerting casue and effect within the economic system.
- Good theories do a good job of explaining and predicting.
What 3 aspects are commonly found in economic principles?
- Generalizations
- Other-thins-equal assumption
- Graphical expression
Describe generalizations with regards to economic principles.
- Economic principles are generalizations relating to economic behaviour or to the economy itself.
- Economic principler are expressed as the tendencies of typical or average consumers, worker, of buseniss firms.
Describe other-things-equal assumptions with regards to economic principles.
- In constructing thier theories economists use other thing equal assumption- the assumption is that factors other than those being considered do not change.
- They assume all variable except those under immediate consideration are held constant for a particular analysis.
What is another term for Other thing equal assumption
ceteris paribus.
Describe other-things-equal assumptions with regards to economic principles.
Many economic models are expressed graphically.
Define macroeconomics
The part of economics concerned with the economy as a whole; with such major aggregates as the household, business and government sectors; and with measures of the total economy.
Define microeconomics
The part of economics concerned with decision making by individual units such as a household, a firm or an industry and with individual markets, specific goods and services, and product and resource prices.
Define aggregate
A collection of specific economic units treated as if they were one.
Mention examples of economic measures within macroeconomics.
- Total output
- total employment
- total income
- aggregate expenditures
- general leve of prices in analysing various economic problems.
Mention examples of decision making microecomics is concerned with
Decision making by:
* Individual customers
* workers
* households
* business firms
Define positive economics
The analysis of facts or data to establish scientific generalizations about economic behaviour.
Define normative economics
The part of economics involving value judgements about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.
