Introduction to micro economics Flashcards
What is economics?
Economics is the study of how individuals, businesses, and governments make choices about allocating scarce resources to meet their needs and wants.
What is the basic economic problem?
The basic economic problem is scarcity, which arises because resources are limited while human wants are unlimited, leading to the need for choices and trade-offs.
What is a normative statement in economics?
A normative statement expresses subjective opinions or value judgments about what ought to be, often involving ethical considerations (e.g., “The government should increase minimum wage”).
What is the difference between needs and wants?
Needs: Essential requirements for survival (e.g., food, shelter).
Wants: Desires for goods and services that are not essential (e.g., luxury items).
What is a positive statement in economics?
A positive statement is objective and fact-based, describing what is or what will be, without value judgments (e.g., “The unemployment rate is 5%”).
What is the difference between a free good and an economic good?
Free Good: Available in unlimited supply and does not have an opportunity cost (e.g., air).
Economic Good: Scarce and requires resources for production, thus has an opportunity cost (e.g., manufactured goods).
What’s the difference between microeconomics and macroeconomics?
Macroeconomics: The study of the economy as a whole, including national income, inflation, and unemployment.
Microeconomics: The study of individual consumers and firms, focusing on supply and demand, pricing, and competition.
What is meant by utility in economics?
Utility refers to the satisfaction or benefit derived from consuming goods and services.
What are the 3 questions of resource allocation?
What to produce?
How to produce?
For whom to produce?
What are the 4 factors of production?
Land: Natural resources.
Labor: Human effort.
Capital: Machinery and tools.
Entrepreneurship: Innovation and risk-taking
What are the 4 rewards to the 4 factors of production?
Land: Rent.
Labor: Wages.
Capital: Interest.
Entrepreneurship: Profit.
What is opportunity cost in economics?
Opportunity cost is the value of the next best alternative that is forgone when a choice is made.
What is meant by rationality in economics?
Rationality refers to the assumption that individuals make decisions to maximize their utility based on available information.
What are the 3 different economic systems?
Market Economy: Decisions made by supply and demand.
Planned Economy: Centralized government planning.
Mixed Economy: Combination of market and planned systems.
How are resources allocated between the 3 economic systems?
Market Economy: Through price mechanisms and competition.
Planned Economy: Through government directives and central planning.
Mixed Economy: Through both market signals and government intervention
What is meant by productive efficiency in economics?
Productive efficiency occurs when goods are produced at the lowest possible cost.
What is meant by allocative efficiency in economics?
Allocative efficiency occurs when resources are distributed in a way that maximizes total societal welfare, producing the combination of goods most desired by society.
Who are the 3 economic agents?
Households
Firms
Government
How are resources allocated by 3 economic agents?
Households: Decide on consumption based on preferences and budget.
Firms: Allocate resources based on production costs and market demand.
Government: Allocates resources through policies, taxation, and spending.
What are the different rewards to the various economic agents in economics?
Households: Income from labor and investments.
Firms: Profits from selling goods and services.
Government: Tax revenues and social welfare benefits.
What are the four methods of resource allocation in economics?
Market Mechanism: Prices and competition.
Command: Government decisions.
Lottery: Random selection.
First-Come, First-Served: Based on timing
What is the problem hopefully assumption of rationality in mainstream economics?
The assumption is that individuals always make decisions that maximize their utility, which may not always hold true in real-world scenarios due to behavioral biases.
How do you use a PPC diagram to illustrate opportunity cost?
A Production Possibility Curve (PPC) shows the trade-offs between two goods. Moving from one point to another along the curve illustrates the opportunity cost of producing more of one good at the expense of the other.
How do you use a PPC diagram to illustrate economic growth?
Economic growth is represented by an outward shift of the PPC, indicating increased production capacity and resources.
