Economics Module 1 Flashcards
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limited resources means that everyone cannot have all they want, must face choices
scarcity
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process of making choices
decision making
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choice that is the most desirable
best/optimal choice
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relative desires
economic wants
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what is actually required in order to survive
biological needs
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there are limited resources, each decision has trade offs
why choices are made
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system for coordinating society’s productive activities
economy
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what kinds of choices the economy requires
production, distribution, consumption
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institutional arrangement or methods used in order to make choices for the economy
economic system
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allocating different limited quantities
rationing
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type of rationing done by determining prices
rationing in a market economy
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goods it is difficult to survive without a minimum amount of
necessities
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more wants than is possible= prices go up
increased demand= increased prices
peak/dynamic/real-time/demand based pricing
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when output and income decline for at least six months
recession
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information that consumers use so that they make the right decisions
price signals
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individuals make decisions on behalf of households or firms
self interest
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choices are made that are best for the society as a whole
social interest
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in pursuing your own interests, you often end up supporting society’s interests, reason for market system not being chaos
invisible hand
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market fails to achieve the best use of society’s resources, when the pursuit of self interest leaves the rest of society worse off
market failure
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individuals on behalf of households and firms own resources and make decisions, decentralized
free markets/capitalism/laissez faire
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government owns resources and makes decisions, not a lot of consumer goods, centralized
command/centrally planned economy
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no central plan for the economy, no set prices, no set breakdown of resources
decentralized
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property in which the gains and losses are solely on you
private property
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have aggregate wealth increased by the use of resources rather than spreading the wealth
goal of capitalism
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self interest=social interest
best outcome
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when assumptions hold
theories are valid
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studies how people make decisions and how these decisions interact
microeconomics
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studies the overall ups and downs in the economy
macroeconomics
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growing ability of the economy to produce goods and services
economic growth
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economic growth that does not harm the environment
sustainable long-run economic growth
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decision by an individual of what to do and what not to do
individual choice
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first principle of individual choice
choices are necessary because resources are scarce
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anything that can be used to produce something else
resource
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resources supplied by nature
land
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effort of workers, measured by hours of people at work
labor
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any manufactured aid to production
physical capital
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acquired skills, education, and training of those in the work force
human capital
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second principle of individual choice
the true cost of something is its opportunity cost
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what you must give up/sacrifice in order to get something, benefits forgone from not picking the next best alternative
opportunity cost
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third principle of individual choice
“how much” is a decision at the margin
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comparing the cost with the benefits of doing something
trade-off
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decisions about whether to do a bit more or a bit less of an activity
marginal decisions
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study of marginal decisions
marginal analysis
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fourth principle of individual choice
people usually respond to incentives, exploiting opportunities to make themselves better off
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anything that causes a person to change their behavior or decision, basis of all predictions about individual choices and decisions
incentive
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what an individual item bought is worth
price
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amount needed to produce a product
cost
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type of resource that can be produced
capital
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benefits or doing a little more or less of something
marginal benefits
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costs of doing a little more or less of something
marginal costs
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a person increases an activity
when MB is greater than or equal to MC
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quantity of resources
input
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knowledge about how to combine inputs, how to combine goods and services
technology
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prices of inputs
cost of production
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a person decreases an activity
when MB is less than MC
