ECON 102 Midterm Review 1 Flashcards
Economics
The social science that studies production and trade
Spontaneous Order
order that is the product of human action, but not human design
Microeconomics vs. Macroeconomics
Microeconomics is economics in general, while macroeconomics is a subfield focusing on money
Economics and business
impacts stocks, prices, etc
Economics and Social issues
impacts jobs, salaries, etc
positive analysis
analysis concerned with what is or will be
normative analysis
analysis concerned with what ought to be
Theory
an abstract explanation of some phenomenon
society
a group of people with moral, political or economic relationships with each other
social system
A set of rules that determine the role of physical force in human relationships
market economy
a social system in which resources are privately owned and controlled- capitalism
property right
A moral and legal right to control a resource and exclude others from using it
command economy
A social system in which resources are collectively owned or controlled (typically by a government)
mixed economy
A social system in which some resources are privately owned/controlled, and some are owned/controlled by the government
The Four Starting Points of Economics
scarcity, unlimited desires, methodological individualism, rational choice
scarcity
The amount of goods available is not sufficient to satisfy all human desires
unlimited desires
No matter what one’s current circumstances, it is always possible to imagine and achieve a more desirable state of affairs
methodological individualism
The principle that the individual human being is the basic unit of research in the social sciences - Only individuals have values in economics
rational choice
people always pursue their values
price system
A network of interconnected prices of goods and services
Exchange of Equivalents Theory (4th Century B.C.)
The theory that people exchange one good for another when both parties value the goods equally
Just Price Theory (8th Century A.D.)
the theory that there is a single just price at which each good should be sold
Mercantalism (17th century A.D.)
Social order requires government planning, money constitutes real wealth for a nation, exchange is a zero-sum game, there is a “public interest” separate from the interests of individuals
Real Value of Money
the goods and services that can be purchased with a certain amount of money
Nominal Value of Money
the face value of a certain amount of money
zero-sum game
a situation in which one person’s gain is another’s loss
Classical school of economic thought
Adam Smith 1776 AD
invisible hand
social order is the product of individual interests
Classical Price Theory
Where do prices come from?
Utility
the capacity to be useful and provide satisfaction
subjective theory of price
The theory that the price of a good is determined by its utility
Water-Diamond Paradox
Water is very useful but has a low price, while a diamond is not very useful but has a high price
Labor Theory of Value
The belief that all value in produced goods is derived from labor
Iron Law of Wages
Wages naturally tend to fall to the minimum level necessary for subsistence
intrinsic value theory
the theory that the value of an object is inherent in the object itself
