ECON PRELIM Flashcards
economy comes from the Greek word
oikonomia meaning household management
Father of Modern Economics
Adam Smith
Wrote the first book in economics:
adam smith, “An inquiry Into the Wealth of Nations”
study of how society manages its scarce resources which have alternative uses to produce goods and services to satisfy insatiable/ unlimited wants.
economics
2 main branches of economics
microeconomics and macroeconomics
Study of the behavior of individual units in the economy
microeconomics
Firms, industry, and market
microeconomics
Study of the economy as a whole
macroeconomics
It is based on facts or theory; what is; deals with cause and effect relationship of economic phenomena.
positive economics
It is based on value judgment or opinion; what ought to be?; cannot be tested
normative economics
this refers to a tool used by economists to explain economic phenomena. It uses assumptions to simplify reality.
model
an explanation of why-things are as they are.
theory
is a conjecture/ proposition that is subjected to empirical verification.
hypothesis
This is experienced when firms are able to reduce the per unit cost of producing the output. In simple terms, the firm maximizes the output at lowest possible cost.
economic efficiency
refer to tangible and intangible things that can satisfy human wants. Examples of these are: Food, shelter, services.
goods
types of goods
free goods and economic goods
can be acquired at zero price.
free goods
scarce or limited and have price. Example: Clothes, foods
economic goods
are those that are ready for final consumption.
final goods/finished goods
are those used for further production of a good into finished products.
intermediate goods/ semi-finished goods
what are the factors for production
capital
labor
land/natural resources
entrepreneurship
a simple depiction of the macroeconomy
illustrates GDP as spending, revenue, factor payments, and income
circular-flow diagram
own the factors of production,
sell/rent them to firms for income
▪ buy and consume goods & services
households
buy/hire factors of production,
use them to produce goods and services
▪ sell goods & services
firms
what the diagram omits
government, foreign sector, financial system
collects taxes, buys g&s
government
matches savers’ supply of funds with borrowers’
demand for loans
financial system
trades g&s, financial assets, and currencies with
the country’s residents
foreign sector
The process of improving the quality of all human lives and capabilities by raising people’s levels of living, self- esteem, and freedom.
development
This is the study of the allocation of scarce resources which have alternative uses to produce goods and services to satisfy unlimited human wants.
economics
The study of how economies are transformed from stagnation to growth and from low-income to high-income status, and overcome problems of absolute poverty.
development economics
rates of growth of l
Gross national income (GNI) (monetary growth of GNI per
capita minus the rate of inflation)
Gross Domestic produce
traditional economic measures
The Ability to Meet Basic Needs
sustenance
To Be a Person
self-esteem
An index measuring national socioeconomic development, based on combining measures of education, health, and adjusted real income per capita.
human development index
To Be Able to Choose
freedom from servitude
principles of economics
- people face TRADE-OFFS
- The Cost of Something Is What You Give Up to Get It
- Rational People Think at the Margin
- People Respond to Incentives
- Trade Can Make Everyone Better Off
- Markets Are Usually a Good Way to Organize Economic Activity
- Governments Can Sometimes Improve Market Outcomes
- Country’s Standard of Living Depends on Its Ability to Produce Goods and Service
- Prices Rise When the Government Prints Too Much Money
- Society Faces a Short-Run Trade- off between Inflation and Unemployment
fluctuations in economic activity, such as employment and production
business cycle
Increasing the amount of money in the economy stimulates the overall level of spending and thus the demand for goods and services.
Higher demand may over time cause firms to raise their prices, but in the meantime, it also encourages them to hire more workers and produce a larger quantity of goods and services.
More hiring means lower unemployment.
increases in the general level of prices.
inflation
The faster the government creates money, the greater the inflation rate.
the amount of goods and services produced
per unit of labor.
productivity
: a situation in which a market left on its own fails to allocate resources efficiently.
market failure
the impact of one person’s actions on the well-being of a bystander
externality
the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
market power
s: the ability of an individual to own and exercise control over scarce resources
property rights
Each of these households and firms acts as if “led by an invisible hand” to promote general economic well-being.
adam smith
something that induces a person to act (e.g. rewards or
punishments)
incentives
a group of buyers and seller
market
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
market economy
Rather than being self-sufficient, people can specialize in producing one good or service and exchange it for other goods.
better off
people who systematically and purposefully do the best they
can to achieve their objectives.
rational people
a small incremental adjustment to a plan of action
marginal change
This refers to what you give up to get that item or option.
opportunity cost
means that society is getting the maximum benefits from its scarce resources.
efficiency
means that those benefits are distributed uniformly among society’s members.
equality
