Chapter 2 Flashcards
What is Scarcity?
This is the condition of having to choose among alternatives. Because resources are limited and our wants are unlimited.
What are scarce goods?
These are goods for which the choice of one alternative use requires that another be give up.
What are free goods?
These are goods for which the choice of one alternative use does not require another be given up
Is it possible that air is a free good?
No because other things must be given up in order to use air.
Is gravity a free good?
Yes because nothing is given up in order to use it
What are the two types of choices that must be made when deciding how produce something?
Labor intensive
Capital intensive
What is labor intensive?
Using more human and physical and mental effort than modern production.
What does Capital intensive mean?
Using more machines in production
If you produce a product for one group what happens to the other other group?
Resources become limited
What is opportunity cost?
This is the next best alternative. It is something given up to get what is wanted more.
What are three key economic ideas?
People are rational
People Responds to incentives
Optimal decisions are made at the margin
What does it mean that people are rational?
Informed people will make decisions that if the benefit will be greater than the cost given certain information
What does it mean that people will respond to incentives?
This means people can be motivated to take an action or refrain from action; incentives are negative or positive.
What optimal decisions are made at the margin?
Most decisions are not all or nothing decisions. Little additional benefit will cause action. Little additional cost causes refrain.
What does marginal benefit refer to?
Additional or extra gain
What does marginal cost refer to?
Additional or extra to refrain
What is macroeconomics?
Study of the economy as a whole
What is microeconomics?
Individual behavior and firm choices
What is a variable in economics?
Something with fluctuating value (like your age)
What is a constant
Something without value (how many times you got paid in a week)
What is a theory?
Statement put to test and not yet rejected.
What is a law?
A theory put to even more test. Something that is universal agreed it is not false.
What is a model?
A simplified assumption of reality. The real world as a whole is very complex and as such is difficult to analyze without the use of models. Most economic analyses are carried out by investigating an aspect of the real world at a time through the use of models.
What does the latin term Ceteris Paribus?
everything else held constant / all other things equal
What is a dependent variable?
A dependent variable is one that response to change
What is an independent variable?
One that induces change
What does a fallacy of false cause mean?
This refers to the incorrect assumption that one event will cause another simply because they happen together.
In economics what does a Positive Statement mean?
A statement addressing what is…
It is a statement fact or hypothesis. Positive statements can be tested.
What is a normative statement?
A statement addressing what should be. It is a statement of opinion of value judgement. Normative statements are usually not tested.
It is peoples opinions
In economics we must ask three fundamental questions when producing things and those are..
What to produce, how to produce it, and for whom to produce.
