ECON Flashcards
follows historical stages
Linear Stages of Growth
agriculturally based economy
Traditional Society
Manufacturing national/international outlook
Pre-conditions for take off
industrialiation occurs, rapid growth
take off
takes a long period of time, national economy grows and diversifies, technology increases
drive to maturity
last “developed” stage. capitalist system. mass production and consumption
age of high mass consumption
reallocation of labor from agricultural to industrial sector
structural change model
dominance of developed countries over developing countries lead to dependence and underdevelopment
underdevelopment cos external market
international dependence
underdevelopment is caused by poor economic policies and resource allocation, and government corruption
developed if reduced government control and promotion of free market
neoclassical theory
underdevelopment is due to slow transmission of technology to developing countries
knowledge and technology is important in development
new growth theory or endogenous theory
underdevelopment is due to uncoordinated activities in the market
theory of coordination failure
development is because workers work together
high wages and investment on human capital are essential
o-ring theory
the proper allocation and
efficient use of available resources for
the maximum satisfaction of human wants
Fajardo
the science of choice. It
studies how people choose to use scarce
resources to produce various commodities
Nordhaus
a scientific study which
deals with how individuals and society
make general choices
Sicat
branch of knowledge that
deals with production, distribution and
consumption of goods and services
Webster
Economics studies about wealth
getting and wealth using activities of
man.
Marshall
economic process
unlimited wants > scarcity > decision-making
economics from greek word
oikanomia ; oikos - household; nomos - management
what is economics
study of how people
use their scarce
resources to
satisfy their
unlimited wants.
Deals with the economic behavior of the
whole economy or its aggregates
(composed of individual units)
aggregates: business, govn, household
macroeconomics
Gross national product
- Level of employment
- National income
- General level of prices
“EMPLOYMENT
AND INCOME
ANALYSIS”
macro
Deals with the economic
behavior of individual units
such as: consumers, firms, landowners
micro
Price of rice
- Number of workers in a certain firm
- Income of Mr. Fu
- Expenditures of PLDT
“PRICE
THEORY”
micro
are items that you can see, feel and touch that
requires scarce resources to produce and satisfy human
wants.
goods
Goods that has no opportunity cost
free goods
a product produced by a privately owned
business and purchased to increase the utility, or
satisfaction, of the buyer.
private goods
it refers to a commodity that is made
available to all members of a society. Paid by the
government.
public goods
Something not physical that requires scarce resources to
produce and satisfy human wants.
services
also called factors of production, inputs,
or simply resources,
productive resources
categories of productive resources
natural resources
capital resources
human resources
are people who work to produce a good or service. Examples are a truck driver, plumber,
teacher and nurse.
human resources
are things that occur naturally
in the world and can be used to produce a good
or service. These resources are gifts of nature
and are present without human intervention.
natural resources
are goods produced and used
to make other goods and services. Examples are an office building,
computer, oven, and wrench.
capital resources
everything comes with a price
there’s no such thing as free lunch
These are goods and services that people needs in
order to live.
Without these things, people cannot survive.
needs
good and services that makes the lives
easier and comfortable.
wants
Wants and needs are never satisfied.
branch of Economics that studies the
behavior of individuals and firms in making
decisions regarding the allocation of scarce
resources and the interactions among these
individual and firms.
micro
economic problem
scarcity
exists when the economy are not
enough to meet the wants or needs of
people or the society.
scarcity
When resources needed to satisfy wants
and needs are not available
physical scarcity
When resources are available but
cannot be used by the person or
entity to satisfy their wants or needs.
psychological scarcity
A simplification of economic reality used to make
predictions about the real world.
economic theory
A good theory is simple enough to be
understood. The more detailed a theory gets,
the more confusing it becomes, and the less
useful it may seem.
simplify the problem
Assumptions aid us in better understanding
economic issues and make sense of the
behavior of individuals, groups and institutions
in an economy.
simplify the assumptions
major assumptions in econ
Rationality
2. Profit Maximization
- Perfect Information
- Ceteris Paribus
Economists assume that individuals act in a
logical and predictable manner and pursue goals
which will benefit them.
rationality
It means you try to maximize the expected
benefit achieved with a given cost or to
minimize the expected cost of achieving a given
benefit.
profit Maximization
In most markets, it is assumed that consumers
and producers have complete and accurate
information about products, services, prices,
utility, quality, and production methods.
Perfect Information
Latin phrase which means “all things being
equal” or “other things held constant”, refers to
the assumption which controls the effects of
other variables apart from those that are being
analyzed in the study.
Ceteris Paribus
fallacies in econ
- Failure to hold other things constant under
ceteris paribus. - Post hoc fallacy
- Fallacy of composition
- Sweeping Generalization
This is an error in analysis committed when an
individual considers other extraneous variables
in studying an economic phenomenon. This
results in invalid conclusions since they are no
longer in keeping with the economic theory or
model being considered.
Failure to hold things constant
under ceteris paribus
This fallacy relates to the Latin phrase post hoc
ergo propter hoc which describes how people
make the mistaken notion that since a change
happened after a event, then such change was
caused by the event that came before it.
Post hoc fallacy
This fallacy occurs when one considers a trait of
one part or aspect of something as true and
applicable for the whole.
Fallacy of composition
This fallacy refers to a statement that
oversimplifies a specific scenario presenting it as
a general rule.
Sweeping Generalization
Seeks to understand behavior without making
judgements of the outcome.
It is measurable and can be proved.
Positive ECONOMICS
Analyzes outcomes of economic behavior,
evaluates them as good and bad, and
sometimes prescribes a course of action.
It cannot be measured or proved.
Normative Statements
Incremental, additional, extra or one more
refers to a change in economic variable,
or a change in the status quo.
Marginal
maximum amount a consumer is
willing to pay for an additional good or
service.
also the additional satisfaction or
utility
marginal benefit
the cost added by producing one
additional unit of a product or service.
Marginal Cost
is an examination of
the additional benefits of an activity
compared to the additional costs
incurred by that same activity.
a decision-making tool to help them
maximize their potential profits.
Marginal Analysis
states that all else equal, as consumption
increases, the marginal utility derived
from each additional unit declines.
Law of Diminishing Marginal
Utility
a state where every resource is
allocated optimally so that each person is served in the best
possible way.
Economic Efficiency
The basic economic problem is to match limited
resources to unlimited wants and needs.
Resources are
allocated equally
and everyone
gets the same
share.
Equality
Resources are
allocated
optimally and
we have
generated as
much
satisfaction as
possible.
Efficiency
Giving up of one
thing in return to
another.
The alternatives we sacrifice when
we make a decision.
—— = Weigh of the Cost & Benefit
Trade-Off
value that is given up
Opportunity Cost
The alternatives we sacrifice when
we make a decision.
C r e a t e s
The most desirable alternative
given up as a result of a decision
Opportunity Cost
optimal method of producing goods at
the lowest cost.
it’s impossible to produce
more of one good without decreasing
the quantity of another good that’s
produced.
Productive Efficiency
a curve that illustrates the variations in
the amounts that can be produced of
two products if both depend upon the
same finite resource for their
manufacture.
the point at which a country’s
economy is most efficiently producing
its various goods and services and,
therefore, allocating its resources in
the best way possible.
Production Possibility Frontier
a state of the economy in which production represents
consumer preferences; in particular, every good or service is
produced up to the point where the last unit provides a
marginal benefit to consumers equal to the marginal cost of
producing.
Allocative Efficiency
