Chapter 1 - Wheelan Flashcards
Who feeds Paris?
A rhetorical way of drawing attention to the mind-numbing array of things happening every moment of every day to make our modern economy work.
Scarcity
finisite supply of everything worth having
economy
art of making the most out of life and how do we do that
individuals act in a way
to make themselves as well off as possible. Not necessarily mean cash or material goods.
maximize utilities
Making oneself as well off as possible. not synonymous with being selfish
utility
What makes you better better off in the long run
trade off
decision
altruistic decision
selfless decisions, try to make the best decision given the available information
important decisions
involve balancing value of consumption now vs consumption in the future
how do we maximize utility?
by weighting the cost and benefits of everything we do
opportunity cost
real cost of something is what you give up in order to get it. The second best alternative
when price drops
demand increases
most scarce resource
time
firm
for profit business. anything from a guy selling hot dog to a corporation. or a non profit
firms decide
price of production, goods to sell, and how to produce them
market economy directs resources
to their most productive use
barriers
prevent new businesses from entering a market, not matter how profitable widgets may be
barriers can be
physical or natural ex: seasons, patents, regulations, politics, etc
firms control production
raise profits by lowering cost of production
guide principal
who is going to make the firm most profitable in the long run?
puppy in window?
market price - supply/demand.
price discrimination
selling items at different prices to different individuals ex: airlines - pleasure vs. business
individuals
try to make themselves as well off as possible
firms
try to maximize profits
market economy
powerful source trying to make our lives better by delivering the goods we want to buy
market is
amoral. rewards winners and punishes losers
amoral
no relation to value
diamond water paradox
not vital to our existence yet cost is high bc of scaricity
market provides
goods we want to buy
prices are a way
to allocate scarce resources
what is the function of an economic system?
to decide who gets what - people who are willing to pay the most
capitalism and communism
both ration goods how?
capitalism - with price
communism - making people wait in line
most markets are self-correcting
we allocate price and value to goods
we make good decisions when…
we compare prices
if we fix prices in a market system….
private firms will find another way to compete
EVERY market transaction makes
all parties better off
both firms and consumers act…
in their best interest
rationality assumption
humans act consistently in ways that make themselves as better off as possible
an individual is not better off if
if theyre denying themselves of some option
you optimize if at margin
benefit = cost
cost is higher than benefit
we don’t buy it
cost is lower than benefit
we buy it
pricing products
cognitive and emotional sense
behavioral economics
marriage between psychology and economics
life is not fair
market is to economy what economy is to democracy. a decent flawed choice among many alternatives
markets are consistent with views of individual liberty
preference. cannot tell us what to do
markets will allocate scarce goods and often fail
monopoly, public goods, and income inequality.
