Introductory Economics Flashcards
What is Economics? (2)
- How do we, as a species and the sub-units thereof, provide for ourselves the means of subsistence?
- How do we use the available resources? (What do we produce, how do we produce it and who gets it?)
What is Microeconomics? (4)
Microeconomics considers the ‘small’ scale:
- individual consumers
- employees
- companies
- markets and their interactions
The demarcation is not exact - suppose we consider the recently announced changes to the future regulations concerning car propulsion; the analysis of a specific rule in the market for a particular good/service can be conducted using the tools of Microeconomics, but consequences for supply chains, transport availability and fuel prices are likely to have Macroeconomic implications also.
Some phenomena are ‘Macro’ by definition, e.g. inflation or recession.
Economics vs Chemistry (6)
- Attempt to explain aspects of objective reality
- Scientific, in that we endeavour to eliminate errors
- Use models (mathematical and visual) to help us think
- ‘Uniformity of nature’ does not apply to Economics hence there are no universal laws in Economics
- Humans both react to and create their environment, including social institutions
- Economics involves ethical judgements and ‘political’ opinions
Models in Economics (4)
- Abstraction and simplification allow us to reduce real problems down to a comprehensible level of complexity.
- The choices we make concerning abstraction and simplification are motivated by the use to which we intend to apply the model.
- Mostly we will use visual and mathematical models (but also verbal ’models’).
- A model that is useful for the analysis of one problem will not necessarily be applicable or useful in relation to other problems.
Markets (1 definition + 5 examples)
Any place where two or more parties can meet to engage in an economic transaction
- Auctions
- the stock market
- a shop
- websites
- the labour market etc.
What is The Invisible Hand?
When we go to a supermarket and buy food for the week, it is the final stage of a production and distribution process that has involved the co-ordinated labour of hundreds, perhaps thousands of people, all around the world.
Who plans this process?
Market Failure - Monopoly?
Example?
Definition?
Google was fined five billions of euros by the EU, for anti-competitive practices.
the exclusive possession or control of the supply of or trade in a commodity or service
Subsistence (definition)
the action or fact of maintaining or supporting oneself, especially at a minimal level:
“the minimum income needed for subsistence”
Demarcation (definition)
the action of fixing the boundary or limits of something
Maritime (definition)
connected with the sea, especially in relation to seaborne trade or naval matters
Supply Chain (definition)
the sequence of processes involved in the production and distribution of a commodity.
Abstraction (definition)
the quality of dealing with ideas rather than events
Opportunity Cost
Whenever we choose to use a scarce resource for a particular purpose we forego the outcomes of the other uses to which we could have put that resource. This might not involve any monetary cost, but nonetheless it is important to consider.
We suppose that our abstract ‘consumer’(4)
- knows how much they like each good
- thinks in terms of continuous quantities
- is consistent in their preferences
- always prefers more to less
Utility (definition)
The amount of satisfaction/happiness derived from consuming
What are the units of utility?
There is not any ‘natural’ unit by which we measure satisfaction/happiness, but we can measure it in relative terms. The units might not have an absolute meaning, but they can still represent the relative desirability of one consumption choice compared with another.
Utility Example
For example, suppose that choice A is to consume five apples and one orange, while choice B is to consume two apples and two oranges. If we state that utility (A) = 6 and utility (B) = 10, we prefer B to A. If utility (A) = utility (B) then we are indifferent between the two options
Marginal Utility (definition)
Marginal utility refers to the change in utility corresponding to a very small change in quantity.
This is a useful concept when we consider small changes in behaviour and consumers trying to make the best choice.
Marginal Utility example
Suppose that we were considering two consumption possibilities which differed in quantity by a very small amount, e.g. a chocolate bar weighing three-and-one-half ounces and a chocolate bar weighing three-and-three-quarter ounces. Even though the difference is small, we could still express a preference (presumably for the heavier bar) and this would take the form of attaching a higher utility to the heavier bar
Marginal Utility (definition)
Why is it useful?
refers to the change in utility corresponding to a very small change in quantity
This is a useful concept when we consider small changes in behaviour and consumers trying to make the best choice
The shape of the indifference curve is not chosen at random, but rather illustrates the assumptions which we make about consumer preferences.
The 2 factors are?
- non-satiation (the state of never being satisfied)
- diminishing marginal utility (utility decreases the more you have of it but it will never be 0)
Utility as a function of one good (picture)
Utility as a function of two goods (picture)
The choices which we make as consumers are not ______________. We are limited by our __________ ________/________.
Therefore consumer choices depend not only on preferences but also on the ‘__________ _______’ available.
The choices which we make as consumers are not unconstrained. We are limited by our available income/wealth.
Therefore consumer choices depend not only on preferences but also on the ‘spending power’ available.