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Economics Flashcards

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1
Q

Five key concepts

A

Scarcity
Trade offs
Incenstives
Marginal Analysis
Optimising choices and their outcome (equilibrium)

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2
Q

What is Scarcity

A

the desire for something exceeds what is available so we have to choose where they go

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3
Q

Trade Offs

A

Due to scarcity we have to make trade offs

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4
Q

oppurtunity cost

A

The benefit you give up when you choose one option over another

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5
Q

Marginalism

A

Focuses on the effects of small changes in economics variables such as price quality or time

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6
Q

Efficient Market

A

A market in which profit opportunities are eliminated almost instantaneously

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7
Q

Slope Equation

A

change in Y / change in X = (y2-y1) / (m2-m1)

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8
Q

production

A

the process of transforming scarce reosurces into useful goods or services

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9
Q

inputs

A

the reousrces or facors of production that go into the process of production

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10
Q

outputs

A

goods and services of value to households that come out of production

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11
Q

Theory of competitive advantage

A

Specialization and free trade will benefit all trading parties even those that may be absolutely more efficient producers

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12
Q

Absolute advantage

A

A producer has an absolute advantage in the production of a good or service if he or she can produce that product using fewer resources

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13
Q

Comparative advantage

A

A country should specialize in producing goods and services in which it has a lower opportunity cost compared to other countries.

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14
Q

Consumer goods

A

goods produced for presetn consumption

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15
Q

The marginal transformation

A

The slope of the production possibility frontier

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16
Q

Consumer Soverignty

A

The idea that consumers ultimately dictate what will be produced or not by choosing what to buy and what not to

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17
Q

equillibirum (in perfect comeptition market)

A

where price = marginal cost

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18
Q

choice set or oppurtunity set

A

the set of options that is defined and limited by the budget constraint

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19
Q

Budget Constraint

A

Price of good x quantity of good x + price of y and quantity of y = household income

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20
Q

Utility

A

The satisfaction a product gives

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21
Q

law of diminishing marginal
utility

A

The more of any one
good consumed in a given
period, the less satisfaction
(utility) generated by consuming
each additional (marginal) unit
of the same good.

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22
Q

Marginal Utility

A

The additional satisfaction gained by the consumption or use of one more unit of a good or service

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23
Q

the utility-maximizing rule

A

Marginal utility of good x / price of good x = marginal utility of good y / price of good y

24
Q

The income effect

A

The change in consumption of an output that occurs when a consumers income changes, holding prices constant

25
Q

the labour supply curve

A

A graph
that illustrates the amount of
labor that households want to
supply at each given wage rate.

26
Q

indifference curves

A

A set of points each point representing a combination of goods x and y all of which have the same utility

27
Q

utility maximising rule

A

Marginal utility of x / price of x = marhinal utility of y / price of y

28
Q

what happens to a graph when the price of a good is lowered

A

lowering the price of a good expands the oppurtunity set and expands the budget constraint to the right

29
Q

The marginal rate of transfromation

A

that measures the rate at which one good must be sacrificed to produce an additional unit of another good

30
Q

Marginal Rate of transformation equation

A

change in the quantity of good y / change in quantity of good x

31
Q

marginal analysis

A

weighing the costs and benefits that change as a result of choice

32
Q

marginal benefit

A

the additional satisfaction or utility a consumer derives from consuming one more unit of a good or service

33
Q

sunk costs

A

irreversible
cost that have already been incurred

34
Q

Diamond water paradox

A

the things that have the greatest value in use have frequently little or no value in exchange.

and those that have greatest value in exchange have little use
e.g diamond and water

35
Q

economic models

A

simplified variables of reality used to analyse real-world economic situations

36
Q

economic variables

A

something measurable that relates to resources that can have different values

37
Q

Property rights

A

the right to use the good
the right to earn income from the good
the right to transfer the good to others who can use

38
Q

what makes a market the most efficent

A

all information, including private information is reflected in current prices (insider trading is ineffective)

39
Q

price mechanism

A

the system in the free market where price changes lead to producers changing production in accordance with the level of consumer demand

40
Q

free market

A

individuals and businesses have the freedom to make their own economic decisions with minimla government interaction

41
Q

perfect market

A

an idealised theoretical market that assumes certain conditions are met

42
Q

competitve market

A

many firms, selling identical products to many consumers

43
Q

perfectly competitive market

A

also have free entry/exist abd particpants who have perfect information

44
Q

pareto efficency

A

economy is operating at a point wher no one can be made better off without harming someone else

45
Q

fallacy of composition

A

when on assumes that what is true for a part as also true for a whole

46
Q

fallacy of inductive reasoning

A

when a conclusion is drawn from limited number of observations also known as overgeneralisation

47
Q

normative economics

A

subjective/judgement about what the economy should look like. making value judgements about economic policies and outcomes often based on thical moral beliefs

48
Q

post hoc ergo promoter hoc fallacy

A

when someone assumes that because one event follows another the first event must have caused the second

49
Q

positive economics

A

describes economic phenomena without making value judgements

50
Q

development economics

A

looks at the development of devloping countries

51
Q

experimental economics

A

uses experiments to test economic theories

52
Q

normal good

A

when your income increases you demand more

53
Q

inferior good

A

when your income increases you demand less

54
Q

income effect

A

as the price of a good rise the purchasing power of the consumer’s real income becomes less

55
Q

subsititution effect

A

if price goes up you buy less of the good in favour for cheaper alternatives

56
Q

complementary good

A

When the price of one complementary good increases, the demand for the other good decreases.

57
Q

when is a price ceiling effective

A

when it is set below the equilibrium

Psychology (6 decks)

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