INTRO TO ECON Flashcards
The word economy comes from the Greek
oikonomia, management of the household
Father of Modern Economics
adam smith, wrote the book an inquiry into the wealth of nations”
what is economics
study of how society manages its scarce resources to produce goods and services to satisfy unlimited wants
two main branches of economics
microeconomics and macroeconomics
firms, industry, market, supply demand
microeconomics
types of economic statements
positive economics and normative economics
this refers to a tool used by economists to
explain economic phenomena. It uses assumptions to
simplify reality.
model
This is an explanation of why-things are as
they are.
theory
is a conjecture/ proposition that is
subjected to empirical verification.
hypothesis
is experienced when firms are able to reduce
the per unit cost of producing the output. In simple
terms, the firm maximizes the output at lowest
possible cost.
economic efficiency
refer to tangible and intangible things that
can satisfy human wants.
goods
types of goods
free goods and economic goods
types of economic goods
finished/semi-finished products
factors of production
land, labor, entrepreneurship, capital
a simple depiction of the macroeconomy
circular flow diagram
illustrates GDP as spending, revenue,
factor payments, and income (FIRS)
GDP
own the factors of production,
sell/rent them to firms for income
▪ buy and consume goods & services
household
buy/hire factors of production,
use them to produce goods
and services
▪ sell goods & services
firms
What the Diagram Omits? (FFG)
financial system, foreign sector, government
10 principles of economic
How people make decisions
1. People face trade-offs
2. the cost of something is what u give up to get it
3. rational people think at a margin
4. people respond to incentives
how people interact
5. trade can make everyone better off
6. markets are usually a good way to organie economic activity
7. government can sometimes improve market outcomes
how economy works as a whole
8. Country’s Standard of Living
Depends on Its Ability to Produce Goods
and Service
9. price rise when the government prints too much money
10. society faces a short-run face-off between inflation and unemployment
means that society is getting the maximum benefits from its
scarce resources.
efficiency
benefits are distributed uniformly among
society’s members.
equality
This refers to what you give up to get that item or option.
opportunity cost
making decisions requires
comparing the costs and benefits of alternative courses of
action.
principle 2
people who systematically and purposefully do the best they
can to achieve their objectives.
rational people
a small incremental adjustment to a plan of action
marginal change
something that induces a person to act (e.g. rewards or
punishments)
incentive
a group of buyers and sellers
market
“Organize economic activity” means determining
what, how, how much, who
an economy that allocates resources through
the decentralized decisions of many firms and households as they
interact in markets for goods and services
market economy
what is the famous insight of adam smith in thhe wealth of nations
Each of these households and firms acts as if “led by an invisible
hand” to promote general economic well-being.
Important role for government:
enforce property rights
promote social welfare
ppl are less inclined to work, invest, purchase if large risk of their property being stolen
the ability of an individual to own and exercise control
over scarce resources
property rights
a situation in which a market left on its own fails
to allocate resources efficiently.
market failure
the impact of one person’s actions on the well-being
of a bystander
externality
the ability of a single economic actor (or small
group of actors) to have a substantial influence on market prices
market power
the amount of goods and services produced
per unit of labor.
productivity
increases in the general level of prices.
inflation
fluctuations in economic activity, such as
employment and production
business cycle
The process of improving the quality of all human lives
and capabilities by raising people’s levels of living, self-
esteem, and freedom.
development
the study of the allocation of scarce resources which
have alternative uses to produce goods and services to satisfy unlimited human wants.
economics
study of how economies are transformed from stagnation
to growth and from low-income to high-income status, and
overcome problems of absolute poverty.
development economics
rates of growth of income per capita
Gross national income (GNI) (monetary growth of GNI per
capita minus the rate of inflation)
Gross Domestic produce
traditional economic measures
Three Core values of Development
SSF
sustenance
self esteem
freedom from servitude
Three Main objectives of Development
To increase the availability and widen the distribution
of basic life-sustaining goods.
To raise levels of living.
To expand the range of economic and social choices.
Basic Indicators of Development
HER
health
education
real income
- An index measuring national socioeconomic development, based on
combining measures of education, health, and adjusted real income per
capita.
human development index
