Intro Flashcards
What is Economics?
Study of how scarce resources are distributed
Resources
Includes everything
Scarcity arises because
• Resources aren’t infinitely abundant (plentiful)
• Human wants are insatiable
Distribution
• Efficiency
• Fairness
Economics is a
Social Science
Economists work on
- Finance
- Money and Banking
- Environment
- Health
- Transportation
- Labor
- Demographics
8..9…10…others
Economics vs Other Social Sciences
Distinguishing feature from other social sciences is its focus on incentives (motivations) in motivating human behavior
10 Principles of Economics
- People face trade-offs
- Cost is what you give up to get something
- Rational people think at the margin
- People respond to incentives (stimulus, motivators)
- Trade can make everyone better-off
- Markets are usually good way to organize economic activity
- Government can sometimes improve market outcomes
- A country’s standard of living depends on its ability to produce goods and services
- Price rises when government prints too much money
- Society faces short-run trade-off between inflation and unemployment
What is Microeconomics
How individual choices / decisions interact on the market
Individual Choice
Decision by an individual of what to do and what to not do
Individual Choice Basic Principles
- Resources are Scarce
- The real cost of something is what you are willing to give up to get it
- “How Much?” Is a decision at the margin
—> Making trade-offs at the margin comparing costs and benefits of doing activity
——> Study of such decisions is Marginal Analysys - People want to make themselves better-off
What is Incentive (stimuli)
Anything that offers reward to people who change their behavior
Interaction of Choices
Interaction of choices is a feature of most economic situations. ——> My choice affect yours and vice-versa
Principles that underlie the Interaction of Individual Choices
- There are gains from trade
- Markets move towards Equilibrium
- Resources should be used efficiently to achieve society’s goals.
—-> (Efficiency “some better off” & Equity “fair share”) - Markets usually lead to efficiency
- Government intervention can improve society’s welfare
Efficiency
Economy is Efficient when it takes all opportunities to make some ppl better-off without making others worse
Equity
Equity means everyone getting their own share
Equilibrium
Economic situation is in equilibrium when no individual would be doing better by doing anything different
Trade
In market economy, individuals engage in trade. They provide and receive back goods/services
Gains from Trade ppl get more with trade than with being self-sufficient
Specialization Each does what they good in + produce
