Economic Principles Flashcards
What is cost?
The cost of something is what you give up to get it.
What is opportunity cost?
Whatever must be given up to obtain some item, or the net value of the next best alternative activity.
Are actual costs included within opportunity costs?
Yes. eg the cost of the taxi is factored in when visiting your friends instead of working.
How do rational people think?
At the margin.
How do economists assume people behave?
Rationally.
What are marginal changes?
Small incremental adjustments to an existing plan of action
What is a marginal cost?
A marginal cost is what it actually costs a provider to supply a good/service
What is a marginal benefit?
How much a provider can charge the customer for a good or service.
What happens if the marginal benefit exceeds the marginal cost?
Profit
What is an incentive?
Something that induces someone to act.
Give an example of an incentive
Changing tax on gas, raising the price of cigarettes :(
What is trade?
Trade is the exchange of goods and services between two parties.
Who wins or is better off in trade?
Both parties are better off.
Who can be worse off within trade?
The two countries may be better off, but individuals within these countries may be worse off.
What are markets for?
(Usually) A good way to organise economic activity.
What is a market economy?
An economy that allocates resources through the decentralised decisions of many firms and households as they interact with each other
What does standard of living depend on?
A countries ability to produce goods and services.
What causes prices to rise?
When the government prints too much money.
What is the short term trade off that society faces?
A tradeoff between inflation and unemployment.
What are models for?
Economists use models to help us understand the real world.
What is a positive statement?
A claim that describes the world as it is.
What is a normative statement?
A claim that attempts to prescribe the world as it should be. (eg: “we should have lower unemployment”.)
