Chapter 5 | Are Your Smart Choices Smart for All? Flashcards
scarcity
the problem that arises from our limited money, time, and energy
economics
how individuals, businesses, and governments make the best possible choices to get what they want, and how those choices interact in markets
opportunity cost
cost of best alternative given up
incentives
rewards and penalties for choices
production possibilities frontier
maximum combinations of products or services that can be produced with existing inputs
absolute advantage
the ability to produce a product or service at a lower absolute cost than another producer
comparative advantage
the ability to produce a product or service
opportunity cost formula
give up / get
Circular Flow of Economic Life
Individual Households -> Input Markets -> Businesses
Businesses -> Output Markets -> Households
Government
model
a simplified representation of the real world, focusing attention on what’s important for understanding
inputs
the productive resources – labour, natural resources, capital equipment, and entrepreneurial ability – used to produce products and services
positive statements
about what is; can be evaluated as true or false by checking the facts
normative statements
about what you believe should be; involve value judgements
microeconomics
analyzes choices that individuals in households, individual businesses, and governments make, and how those choices interact in markets
macroeconomics
analyzes performance of the whole Canadian economy and global economy; the combined outcomes of all individual microeconomic choices
key 1
opportunity costs rule
key 2
Look Forward Only to Additional Benefits and Opportunity Costs
key 3
Implicit Costs and Externalities Count, Too
marginal benefits
the additional benefit from a choice, changing with circumstance
marginal opportunity costs
additional opportunity costs from the next choice
implicit costs
hidden opportunity costs of what business owner could earn elsewhere with time and money invested
negative externalities (external costs)
costs to society from your private choice that affect others, but that you do not pay
positive externalities (external benefits)
benefits to society from your private choice that affect others, but that others do not pay you for
economic disasters
The Global Financial Crisis
(2008–2009)
involved housing bubbles that
burst, falling asset prices, and failures of banks and financial institutions
Great Depression
(1929–1933)
involved financial bubbles that burst, high unemployment, falling living standards, bankruptcies, and government policy mistakes