Important Stuff Flashcards
Association Is Causation Fallacy
Factor A is associated (correlated) with Factor B ——-> Factor A is a causing factor.
Alternative possibilities: Factors A and B are associated, but factor b is causing factor a; factors a and b are associated, but only by chance; factor a may be casually linked to factor b, but another factor may have a stronger impact.
Fallacy of Composition
What is true for a part is automatically true for the whole
Ignoring the secondary effects
Those effects which develop slowly over time–not obvious at first
Rational self-interest
People generally act to further their own well-being; and they do so in a logical manner
The “carrot” approach
Increase the benefits from doing the activity
The “stick” approach
Increase the costs from not doing the activity
Optimization
Making a well-defined measure the best that it can be
Equilibration
The balancing of opposing forces such that they exactly offset each other, thus generating an unchanging outcome
The concept of opportunity cost
The benefit generated by the best alternative foregone when an action is taken
Sunk cost
a cost which has already been incurred and cannot be recovered no matter what decision you make today
Specialization
Specialization occurs when a person concentrates on performing a single task
Shifting the production possibilities frontier:
1) Increase/Decrease in resources
More land, labor, capital, entrepreneurship ability—–> greater production capability ——-> PPF shifts out
Shifting the production possibilities frontier:
2) Increase/Decrease in technology
More technology —–> greater production capability ——> PPF shifts out
Technology: the big t
our pool of knowledge about the industrial arts
Economic systems
A collection of institutions/organizational arrangements which answer the 3 basic questions for an entire economy: w Mihat to produce, how to produce; and who gets the output?
Libertarian
Public sector size: 3-10%
National Defense, police, court systems. Not much else. Property owners are decision-makers
Conservative mixed market
Public sector size: 15-20%
Above plus primary, secondary education; modest welfare program; local parks, roads, street cleaning; slight to moderate support for undergraduate higher education. Property owners still major decision-makers, but govt. authorities intervene in certain markets.
Liberal mixed market
Public sector size: 30-40%
Above plus greater college education spending; larger welfare system; job training programs; larger public works programs. Property owners still play dominant role, but govt. authorities can and do intervene frequently.
Market Socialism
Public sector size: 30-50% (hard to say)
Similar to or larger than Liberal mixed market; but still a dominant, market oriented private sector. Explicit rejection of property rights, however as major determinant of who economic decision-makers are; instead, formation of institutions which transfer at least some decision-making powers to non-owners of property transfer control of individual firms to their workers.
Central Planning
Public sector size: 50-85%
Government ownership of most basic industries. Private sector could be composed of a limited number of small/retail wholesale firms. Economic decision makers are generally government planners.
Law of Demand
All else equal, the higher the price of a well-defined good or service, the lower the quantity demanded, and vice versa.
Earnings up, demand down
inferior goods
earnings up, demand up
normal goods
Law of Supply
All else equal, the higher the price of a well-being good or service, the higher the quantity supplied and vice versa.
