Exam 1 -Chapter 1 Flashcards
Economists believe that all people, all businesses and all nations are faced with the same economic problem
Human wants that exceed the resources available to satisfy those wants.
Scarcity
Resources are always scarce relative to wants
Economics
Science of scarcity
A consumer is limited by their
Income
Time
Other circumstances
Economic problem
This world of limits and choice is what economists call the economic problem.
Scarcity forces what?
Choice making.
Economic problem
- Human wants are unlimited
- Resources, including Monet, time, almost everything else are limited.
- Scarcity is therefore a fundamental fact of life.
- Scarcity requires us to make choices.
- This life of scarcity and choices is called the economic problem.
What is economics
Economics is the study of how people, businesses, and government deal with the problem of scarcity.
Scarcity applies to
Both monetary and nonmonetary aspects of life
Alfred Marshall in the late 1800s wrote that
“Political economy or economics is the study of mankind in the ordinary business of life”
He suggested economics is mainly about “incentives to action and resistance to action”
Scarcity of resources is not
Just about a scarcity of money.
What will yield itself to economic analysis?
Anything that has to do with choices, incentives, and scarcity will yield itself to economic analysis.
People, we believe, make choices designed to
Maximize their happiness
Businesses choose to
Maximize their profits, the money they make above their costs.
People and businesses respond to
Incentives
Economics real job is to
Figure out what those behaviors will be, and what incentives will work to change them, if needed.
Utility
Is the economists term for happiness or satisfaction
Disutility
Negative utility
Economic theory is based on the presumption that
People will attempt to maximize their utility.
Good
A good is something that creates utility for a person. And, food, and love are all goods. A good does not have a price, it only has to make us happy.
Economic good
Economic good is a special type of good it was a board that is so scarce that someone is willing to pay for it.
Economic bad
Economic bad is the bed that is so plentiful that someone is willing to pay to get rid of it. Example pollution control equipment in our cars.
To produce a good, the business uses
Resources
Economists classify resources into for basic groups or factors of production
Natural resources [land]
Capital
Labor
Entrepreneurship
Natural resources [land]
Are all the gifts of nature ,from the ground , air and water
Capital
Capital is human made goods that are used to make other goods.
Labor
Is people or workers
Entrepreneur
The risk taker is called entrepreneur. In the modern world, the entrepreneur may be a business that starts a new business or adapts a new strategy, not a person. Because of this, we label the process of creating the business as entrepreneurship, because it may not be tied to a specific person.
The 4 resources, or factors of production
Are scarce.
Economists Believe that the business is primarily concerned with
Earning a profit. The profit of the firm is the revenue or money it earns from selling its products, minus the cost of the resources it consumes.
Globalization
Means the partial economic integration of the world
Trade
Means shipping goods from one country to another
Globalization means that the
Economy of one country cannot function without the economy of the other
Globalization requires
Free-trade, but it is not defined by it.
In a fully globalized economy,
Natural resources can also move from one country to another without barriers or restrictions , not just goods.
Globalization means businesses
Operate in more than one country at the same time
Globalization allows consumers to
Choose from a wider variety of goods and services
Globalization means that businesses can use
Natural resources, labor, and capital from many countries, instead of just one.
For some workers, globalization means
More opportunity for them to sell their skills.
For other workers, globalization increases the competition for their services, often from workers in countries with much different wages and labor laws.
Globalization lessens the
Economic power of government
Globalization also encourages
Cooperation among governments, in part because individually they have less control.
Globalization is not a new phenomenon of the 21st-century
It was first seen in the Roman era nearly 2000 years ago. It was first seen in the New World in the 16th century.
Why did Columbus succeed where the others had failed?
Capital. Columbus was the first visitor who had ships big enough to move large quantities of goods between the New World and old world
The right application of ——– to labor and land is necessary to create profitable production.
Capital.
Modern waves of globalization
Mid to late 1800’s -
Steam ships- allowed ocean crossing to go from weeks to days.
It created new opportunities for countries to work together.
Telegraph – people were no longer burdened by slow information
Telecommunications- advances allowed business people to work together virtually instantly despite the distances.
Jet airplane – made ocean crossings a matter of hours instead of days.
Globalization accelerated with the Internet.
For example -Video conferences.
Benefits of globalization
Many people are fans of globalization with the increased choices it brings for consumers and the increased opportunities it bring for businesses.
Disadvantages of globalization
Many people are concerned with the lower wages and benefits some workers have suffered, the movement of jobs to other countries, and the lessening of control each government has over its nation.
Like many things in economics, the question becomes
One of costs and benefits.
Opportunity cost
Every time we make a choice We give up something. Sometimes we give up money, sometimes we give up time and sometimes we give up something else whatever we give up when we chose is called a opportunity cost of the choice by the economists.
Opportunity cost = Explicit cost ( money) + Implicit cost ( non money).
To make a good choice, the chooser must
- Compare the cost and the benefits of the choices and
2. Consider both the explicit and implicit cost of the choices.
The Margin
The idea, that good decisions are made by considering the value of adding one more, is called “the margin”
The margin is a basic concept of
Decision making for both consumers and businesses.
There is some measure of ——– in the choice no matter what you do.
Uncertainty.
Is economics a science?
Economists obviously refer to their discipline as a science.
What is science
Science looks at the world in a systematic way known as the scientific method.
Scientific method
- Observation – we noticed something about the world or think we do. So we have an idea of something we want to explain, or something we believe to be true. Our belief does not make it true, it starts us on a path to find the truth.
- Hypothesis- something we wish to test
- Test- run test. Many times, especially on economics and other sciences that deal with human beings, the tests are statistical.
- Conclusion- based on the test of our data, we either say, the test supports the hypothesis or the test disproves the hypotheses.
Scientist believe that we never prove a theory because
We accept it for now because we have failed to disprove it.
Economics Is a group of sciences called the
Social sciences because it deals primarily with humans and human behavior.
Economists rely on a concept called
Ceteris paribus to help us to do science right
We also work to avoid
Errors of assumed causality.
The Latin term ceteris paribus means
Other things held constant, a fancy way of saying that only one variable can be allowed to shift at one time.
Ceteris paribus helps us do good science by
Reminding us that we must separate out each influence and examine it in isolation
Model
Is a mathematical or statistical theory that explains one or more economic concepts through a simplified representation of the world.example graph
How do we evaluate models?
By their ability to predict.
Why is a simple model preferred?
Because our models let us focus on one event and it’s consequences.
Graph
A graph represents a theory, or a relationship in a simplified manner
All economic theories fall into 2 broad categories
Macro economics and microeconomics
Macroeconomics
Macroeconomics concerns issues of the entire economy. The overall level of prices is microeconomic.
Microeconomics
Microeconomics considers the small units that make up the economy. Individual people, businesses, and governments I studied by microeconomist.
Fallacy of composition
Says that you cannot always find the whole by adding up the parts
Normative economic theories
They contain value judgments
Positive economic theories
Positive theories are judgment free
What exceeds the resources available to satisfy them?
Human wants.
Economics
Is the science of scarcity, since it concerns the inequality of wants and resources.
What is the goal of a person
To maximize their utility
Opportunity cost
Opportunity cost is what we give up when we make a choice. It is explicit cost plus implicit cost, where explicit costs are paid in money and implicit cost or non-money factors such as time.
Globalization
Is the partial integration of the economies of different countries.
Choices require us to consider both
Opportunity cost and benefits. The best choices have the higher benefits relative to opportunity cost.
In economics, when we change the value of one variable
We must hold all variables constant to isolate the effect of the change.
Economists cannot generally do science through experiments
But rather must use mathematical and statistical models to explain.
Model
A model is the simplification of a part of the world
Microeconomics
Microeconomics considers the individual person, single business or government.
Macroeconomics
Macroeconomics is concerned with the entire economy, total income and overall employment.
