ECON: Unit 1: Ch 1 Flashcards
economics
the study of how people make choices when they face a limited supply of resources
the fundamental economic problem
scarcity
scarcity
- limited quantities of resources to meet unlimited wants
- scarcity always exists and affects every decision
factors of production
resources used to make all goods and services
-land, labor, capital (any human made resource used to produce other goods and services)
physical capital
goods used to make other goods ie tools and buildings
human capital
knowledge and skills a worker gains through education and experience ie schooling
entrepreneurs
leaders who decide how to combine land/labor and capital resources to create new goods and services
opportunity cost
most desirable alternative given up as a result of a decision, ie buy a computer=no vacation
efficiency
using resources to maximize the production of goods and services
-underutilization: using fewer resources than an economy is capable of using
cost
the alternative that is given up due to a decision
resources and technology
must 1st determine which goods and services a country can produce, given its current resources
-both human and physical capital reflect a vital ingredient: technology
microeconomics
individuals, households, business
macroeconomics
the economy as a whole
positive economics
describes how things are
- what impact will a salary increase have on next years budget?
- role of most economists
normative economics
- focus on how things ought to be done
- what actions should we take now to reduce expenses to balance next years budget?
- economists working with government to create policy
consumer decisions
- has a fixed amount of funds/budget
- how can they get the most quantity for amount of money allotted?
producer decisions
- what to produce?
- how to produce?
- for whom to produce?
“there is no such thing as free lunch”
- everything has a cost
- someone pays for the production/uses time for a “free” object
7 principles to guide an economic way of thinking
- scarcity forces tradeoffs
- cost vs benefits
- thinking at the margin
- incentives matter
- trade makes people better off
- markets coordinate
- future consequences count
scarcity forces tradeoffs
due to scarcity and consequences of making choices, people have to make sacrifices
cost vs benefits
when making a trade off, we must weigh the cost of the decision vs the benefits
-goal: for the benefits to outweigh the costs
thinking at the margin
costs and benefits of adding 1 more unity of a good or subtracting one
-example: how will i feel after 1 more cookie BAD THE ANSWER IS ALWAYS BAD
incentives matter
motivational, responses are predictable, can be positive or negative incentives, will influence decision making
trade makes people better off
someone wont engage in trade if it doesn’t make them better off. focus on what we do well and trade for what you need/want
markets coordinate
when markets operate freely with limited government interference
- capitalism
- adam smiths philosophy in wealth of nations
- “the invisible hand”
future consequences count
most people are shortsighted, economists must consider all consequences.
-law of unintended consequences (unexpected results from action)
economic interaction
exchanges of goods and services between people
-how we get what we want
market
an arrangement by which economic exchanges between people take place
-how we get what we want
price and scarcity
price is determined by scarcity
- need: something we must have to survive
- wantL a way to fulfill a need
paradox of value
- why are diamonds (a want) more expensive than water (a need)?
- diamonds are more scarce than water
growth
more people or inventions
law of increasing costs
as production switches from 1 item to another, more and more resources are necessary to increase production, therefor opportunity cost increases
production possibilities
alternative combos of production of various goods that are possible, given the economys resources
points inside PPC curve
represents inefficient combos, able to increase production without having to decrease 1/2 productions
points outside PPC curve
represents combo that is unattainable to produce with given resources
-can eventually reach w shift in economy/resources/population
