Econ- Chapter 1 Flashcards
Economics is all about
Decision making
Economics
Is the decipline that studies how efficient decisions are made.
Efficient Decisions
Involve choosing the most valuable alternative.
Theory of Revealed Preference
Our choices reveal our values
Characteristics of Value
Situation, different for people, subsequent units of the same good have less value
Optimal Arrangement Principle
The idea that we first choose the best, then the second best, and so on.
Value of something to an individual
The most that individual is willing to sacrifice to obtain that something. Or, if the individual owns that something, its value is the least the individual is willing to accept in exchange for that something.
Why do we value dollars?
The stuff we exchange them for
Cost
The value of THE BEST alternative which is sacrificed when a decision is made.
_____ is not the sum of all the things you could possibly do, because you cannot do all of them.
Cost
Cost sometimes involves
Money
Decisions have at least ___
Two alternatives
No Free Lunch
Any decision involves cost
Macroeconomics
The study of entire economies, using concepts like total output, the unemployment rate, the national debt, total investment.
Scarcity
When we have more wants than our resources can satisfy.
Marginal Value
The value of the individual units of that something.
Marginal Analysis
We consume each unit for which the marginal value is at least as great as marginal cost.
When a consumer purchases more of an item they are taking away from their_____
Least valuable use
When a consumer sends more money the value that is sacrificed___
Rises
Law of Diminishing Returns
As you add more workers to a production facility, eventually they become less productive because there’s no way for everyone to take part in the production process. Facilities cannot expand instantly.
As production increases_____
Marginal costs rises
Demand
The relationship between the possible prices of something and the quantities people are willing to buy, all things being equal.
What do the demand curve and marginal value curve have in common?
They are the same.
Demand can change when___
If either more or fewer people are in the market or if the individuals already in the market have higher or lower values.
Supply can change if___
Firms’ costs change because either the prices of their resources change or the technology that is ECONOMICALLY EFFICIENT TO USE changes.
What are the results for a consumer when purchasing an item?
The benefit of the item, but the negative effect the cost has on the consumer.
What are the results for a producer when a consumer purchases a product?
This is a benefit to the producer, not a cost. Cost to a producer involves items like time and money.
At high prices sellers then create a ____
Surplus
At lower prices sellers then create a __
Shortage
Equilibrium Price
Consumers can buy all they want, and at the same time, firms can sell all they want.
Total Value -Total Cost =
Social Gain
Marginal Social Gain
The social gain from an individual unit
Total Value-Total Amount Paid=
Consumer’s Gain
Total Amount Paid- Total Cost=
Producer’s Gain
The Economic Problem
Allocating scarce resources to their best uses
Changes in supply
Are shifts in the supply curve. That is, producers wish to produce more or less, EVEN IF THE PRICE DOES NOT CHANGE. They are caused by changes in the producer’s costs.
Changes in demand
Are shifts in the demand curve. That is, consumers wish to buy more or less, EVEN IF THE PRICE DOES NOT CHANGE. They are caused by changes in things that influence the consumer’s willingness to purchase the product which have nothing to do the product price.
