Chapter 1: What Economics Is About Flashcards
What is the economic problem
We have unlimited wants but limited resources
What is economics
Economics deals with choices that we make on how to manage our scarce resources in an attempt to satisfy our unlimited wants
Therefore economics is mainly about scarcity, choice and opportunity cost
What are the choices we make based on
Because of scarcity the choices we make are based on opportunity cost.
This is based on wants, needs and demand
Define scarcity
Scarcity means that society has limited resources and therefore can’t produce all goods and services people wish to have.
Define opportunity cost
The opportunity cost of a choice is what you gave up to get
What is the production possibility curve
It indicates combinations of any two goods that are attainable when resources are fully used
What is economics as a social science
Economics studies human behaviour by means of empirical science. This is done by measuring actual experiences
What are the differences between macro and micro economics
Macroeconomics looks at the economy as a whole - income/expenditure, economic growth, unemployment and inflation.
Microeconomics looks at individual parts of the economy - households choices and firms decisions.
What is the difference between a positive statement and a normative statement
A positive statement is a fact.
A normative statement is an opinion.
What are some common mistakes in economic reasoning and explain them.
- The blinkered approach - own vantage point.
- Fallacy or composition - a whole is equal to the sum of the parts.
- Post hoc ergo propter hoc - after this, therefore because of this.
- Correlation and causation - one event is not the cause of another.
- Levels with rates of change
