Key principles of economics Flashcards
Economics
study of how individuals make decisions to maximise their well-being given limited resources
8 key principles:
- making choices
- considering trade offs and opportunity costs
- specialisation leads to gain for everyone
- people respond to incentives
- thinking on the margin
- markets are generally efficient (if not, governments can correct the failure)
- economic growth, low unemployment, low inflation are economic goals
- institutions and human creativity help explain the wealth of nations
Opportunity cost/trade off
best alternative which is given up when a decision is made
Scarcity
people must make choices based on the given the resources limitations they face
Incentives
Factors (both good and bad) that influence how people make decisions
Microeconomics
Deals with individuals, firms and looks at how market is structured
Macroeconomics
Deals with inflation, (un)employment, economic growth
Efficiency
Deals with how well resources are used
Production efficiency
Goods are produced at lower cost
Allocative efficiency
Individuals who desire a product them most obtain those goods
Pareto efficiency
Society improves the well-being of individuals without making anyone worse off
Stylised (simple) model
Model to analyse the issue
Equity
The fairness of various issues and policies
Positive question
Question that can be answered as long as the information is available
Normative question
Question that can be answered based on social beliefs (ask how should or ought to be)
