ECON 101 - chp. 1 Flashcards
Define economics
social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices.
define scarcity
Our inability to get eveyrthing we want
why and how do we make choices?
we make choices due to scarcity.
the choices we make depend on the incentives we face
Define incentive
a reward that encourages an action or penalty that discourages an action
provide a positive incentive
scholarship for getting high grades
provide a negative incentive
parking ticket
define microeconomics
study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments.
define macroeconomics
study of the performance of the national and global economics
what are the 2 questions that summarize the scope of economics
- how do choices end up determining what, how, and for whom goods + services get produced?
- do choices made in the pursuit of self-interest also promote social interest?
define goods + services
objects that people value and produce to satisfy human wants
define factors of production
resources we use to produce goods + services
describe what we produce
what we produce varies across countries and changes over time
describe how we produce
how we produce is based on the technologies and resources we use
what are the factors of production
- land
- labour
- capital
- entrepreneurship
what does the quality of labour depend on?
human capital (knowledge + skills)
define land
the “gifts of nature” that we use to produce goods + services
how to obtain human capital
education, work experience, on-the-job training
define capital
tools, instruments, machines, building and other constructions that businesses use to produce goods + services
Define entrepreneurship
the human resources that organizes land, labour, and capital
for whom does the goods and services get produced for?
dependent on the incomes that people aern
what are the revenue for each factor of production
- land = rent
- labour = wages
- capital = interest
- entrepreneurship = profit
which factor of production revenue earns the most? what percentage?
wages from labour earns the most. about 70%
define self-interest
choice that you think are best for you
define social interest
choices that are best for society as a whole
what are the 6 key ideas that define the economic way of thinking
- a choice is a tradeoff
- people make rational choices by comparing benefits + costs
- benefit is what you gain from something
- cost is what you must give up to get something
- most choices are “how-much” choices made at the margin
- choices respond to incentives
define a rational chocie
a chocie that compares the costs and benefits and achieves the greatest benefit over cost for the person making the choice
how do you determine the rationality of a choice?
on the wants of the person making the choice
define benefit in the econ context
the gain/pleasure that it brings and is determined by preferences
define preferences
what a perons likes and dislikes and the intensity of those feelings
define opportunity cost of something
is the highest-valued alternative that must be given up to get it.
what are the 2 components of opportunity cost
- time
- purchasing power (money)
define marginal benefit
benefit from pursuing an incremental increase in an actiivty
define marginal cost
oppourtunity cost of pursuing an incremental increase in an activity
What happens when there’s a change in marginal benefit/cost
there’s a change in the incentives we face and leads us to change our choice
what happens when marginal benefit is greater than marginal cost for an activity
our rational choice is to do more on the activity
define positive statements
it’s about “what is”
it must be right or wrong
can be tested by checking it against facts
define normative statements
is about :what ought to be”
it expresses an opinion and cannot be tested
define an economic model
a description of some aspect of the economic world that includes only those features that are needed for the purpose at hand
define ceteris paribus
all other things being equal
what types of experiments do economists use to test economic models?
- natural experiments
- statistical investigations
- economic experiments
define natural experiements
situations in the ordinary course of economic life in which the one factor of interest is different and other things are ceteris paribus. - takes too long
define statistical investigations
to find correlations -
define economic experiments
putting people in decision-making situations and varying the influence of 1 factor at a time to discover how they respond - costly
define a scatter diagram
plots the values of 1 variable against the value of another variable for a number of different values of each variable
what’s the importance of a scatter diagram
reveals whether a relationship exists between 2 variable
what are the 4 cases to look in for graphs
- variables moving in the same direction
- variable move in opposite directions
- variables have a maximum or minimum
- variables are unrelated
define a direct relationship in regards to 2 variables
2 variables that move in the same direction
define a linear relationship
a relationship shown by a straight line for variables that move in the same direction
define a positive relationship
a line that slopes upward - variables that move in the same direction
define an inverse relationship in the context of variables
a relationship between 2 variables that move in opposite directions.
define negative relationship
a line that slopes downwards
how to show graphs of variables that are unrelated
a y constant or an x constant
define slope of a relationship
the change in the value of the variable measured on the y-axis divided by the change in value of the variable measured on the x-axis
how to calculate the slope of a straight line
rise over run
how to calculate the slope of a curve line on a point
slope is equal to the slope of a straight line that is the tangest to that point
how to calculate the slope across an arc
the average slope of a curved lined across an arc is equal to the slops of a straight line that joins the endpoints of the arc.
How to graph a relationship among more than 2 varibales
we can plot the relationship between 2 variables by holding other variables constant (ceteris paribus)
How is what society can get limited?
limited by the productive resources available
define goods
physical/tangible objects
define services
tasks performed for people - intangible objects
define labour
the work time and work effort hat people devote to producing good + services - includes physical + mental efforts of all the people
define financial capital
money stocks, bonds
importance of financial capital
enabling businesses to borrow funds that they use to buy physicals capital
can self-interest promote social interest
yes, it depends on the context and what your self-interest is
define efficient in the context of economics
to describe a situation that can’t be improved upon
define globalization in economics
expansion of international trade, borrowing and lending, and investment
define market capitalism
economic system in which individuals own land + capital and are free to buy and sell land, capita, and goods and services in markets. market for goods and services which determine what, how, and for whom goods and services are produced. there’s no supreme planner guiding the use of scare resources and the outcome is unintended and unforeseeable.
define a centrally planned socialism
economic system where the government owns all the land, capital, directs works to jobs and decides what, how and for whom to produce.
define a mixed economy
market capitalism with government regulation
define a tradeoff in the context of economics
an exchange - giving up 1 thing to get something else
how do economists measure benefit?
the most that a person is willing to give up to get something
what do economists see incentives the key to?
key to reconciling self-interest and social interest
define an economic model
a description of some aspect of the economic world that includes only those features that are needed for the purpose at hand
when are most choices made
at the margin by comparing marginal benefit and marginal cost
how can economics be use as a toolkit
used to provide advice on government, business and personal economic decisions.
