Economics Flashcards
the social science that studies the choices that individuals, businesses, governments, and societies make as they cope with scarcity and the incentives that influence and reconcile those choices
economics
the rational, analytical study of the way society uses its available resources to satisfy its wants
economics
things of value which society possess
resources
desire for a thing
want
desire + ability and willingness to pay for something
Demand
necessity
need
reward
incentive
everything for which a want must go unfulfilled; our inability to satisfy all our wants
scarcity
lack of enough resources to satisfy all desired uses of those resources
–there aren’t enough resources available to satisfy all our desires
scarcity
Scarcity of resources limits the amount of good and services that can produced
- -somebody’s wants will have to go unfulfilled
- —–whose?
- -scarcity requires economic choices to be made
- —–who will decide?
Scarcity: the core problem
a product which satisfies want
good
an action performed for someone’s benefit
service
something that does not require giving something up to obtain it
free good
you can think of every choice as a_____
an exchange
giving up one thing to get something else
tradeoff
when we choose to use resources to produce one thing, we must give up producing something else with those resources. This tradeoff comes with a cost
…
the value to you of the next most desired good forgone to obtain some other higher- priority good
–what is given up to undertake a chosen activity
opportunity cost
What must be given up to obtain an item
What must be foregone to obtain something
Opportunity cost
Thinking about a choice as a tradeoff emphasizes cost as an opportunity forgone.
The highest-value alternative that we give up to get something is the ___ of the activity chosen
opportunity cost
current level of activity
margin
the value places on an extra (one more) unit of an item
marginal benefit
the value of the sacrifice made to obtain an addition unit of an item
marginal cost
People make choices at the margin, which means that they evaluate the consequences of making incremental changes in the use of their resources
….
the benefit from pursuing an incremental increase in an activity is its
marginal benefit
the opportunity cost of pursuing an incremental increase in an activity is its
marginal cost
occurs when individuals seek net gains by undertaking actions for which marginal benefit exceeds marginal cost
rational behavior
when marginal benefit exceeds marginal cost of an activity, a rational person will undertake more of that activity
…
our choices respond to incentives
for any activity, if marginal benefit exceeds marginal cost, people have an incentive to do more of that activity
if marginal cost exceeds marginal benefit, people have an incentive to do less of that activity
incentives are also the key to reconciling self-interest and the social interest
responding to incentives
When the marginal benefit outweighs the marginal cost ____.
MB>MC means…
the decision will be yes!
Go for it!
When the marginal cost outweighs the marginal benefit____
MC>MB means…
the decision will be no!
avoid it!
scarcity
requires choices
Resources are scarce or limited
wants are insatiable
over time wants change and multiply
objective of economic study is to satisfy these wants
economizing problem
to isolate the effect of interest economics use the logical devise called ceretis paribus “other things being equal”
…
