Lecture 1 - 10 Principles of Economics: Flashcards
Explain o society manages scarce resources
What is meant by Scarcity?
Limited Nature of society’s resources
What is Economics?
The study of how Society Manages its scarce resources.
What do people face most when making decisions?
Give Examples?
Treade Offs.
Example:
Havinf more money to spend on consumables requires working lnger hours which in turn makes us have less time.
What important trade off does society face sometimes?
Efficiency vs equality:
Why is economics such a difficult topic?
Because it involves measuring trqde offs, “on the one hand , on the other hadn” It is never simply balck and white and it requires extensive statistical and econometrical modeling to understanad it
What does economic decision making require?
Comparing the Costs and Benefits of picking option A over option B
What is meant by oportunity cost?
Oportunity cost is of any item is what must be given up to obtain it .. it is the cost of not chosing something else
Give Examples of Oportunity Cost:
Who is Milton Friedman, and what did he proclaim?
https://www.youtube.com/watch?v=r6hgEkdSlJw
A) Famous Economist,
B) He said nothing is free, and the spending of people depends greatly on whether it is fo them or for someone else
What is meant by rational people?
Rationale People systematically and purposefully do the best they can to ahcieve the following objectives:
For a customer: maximize their utility based on their preference
For a firm: to mazimize shareholder profits or shareholder value
What does the principle of marginal utility state for decisionmakeing?
Decisions are made by weighing the trade offs between the cost and benefits of marginal changes and incremental adjustments to an existing plan
What are examples of marginal rational thinking?
What are incentives?
Something that induces a person to act. i.e the prospect of a reward or punisment
Name a few examples of incentives that rationale people respond to:
What does the financial times article about education convey about the concept of trade offs?
Trade offs in the eductioan industry are seen in the fact taht young poeple need to weigh the benefits of receiving a college eduations vs not doing one. More people are going to universities and more jobs than ever require university education.
What was mentioned in the college article?
That the cost of attending college has steadily increased and the gap between college and non college educated individuals has weidened. only remedy is seen in online education which is much cheaper
What else was mentioned in the College article?
The marginal benefit of going to college has incerased, for people who can afford to attend it.
Low interest rates have made financing college through loans more attractive.
Explain the concept of Behavioral Explanations and respnfding to incentives unsing the banking crisys.
banks were overly optimistic, ignored risks etc.
What is meant by Pervasive Bank incentives?
If a bank wins, it gets the profits, but when it loses, it socializes the loss as the taxpayers need to recuperate the losses.
Answetr this interactive case:
What should U do?
What is most commonly linked to trade?
The fact that trade has the potential to improve everyones life
Is it better to be self sufficinet or specialized?
In economics it is best to specialize and trade this specialization of services or goods.
How do countries benefot from trade and specialization?
They can get
a) better prices for products abroad
b) buy other goods more cheaply abroad
c) have access to new markets
What is meant by absolute advantage?
The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service. Entities with absolute advantages can produce a product or service using a smaller number of inputs and/or using a more efficient process than another party producing the same product or service.
What is meant by comparative advantage?
The ability of a firm or individual to produce goods and/or services at a lower opportunity cost than other firms or individuals. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.
What are Markets?
A group of Buyers and Sellers , not necessarily in a single location
What is meant by organizing economic activity?
Answering the following questions:
- What goods to produce
- How to produce them
- How much of them to produce
- Who gets them
The answers to these vary over time
What internal economics decisions are adressed by a frim?
Decisions such as, which supplier to choose, whether to produce internally etc. consideration is given to hold up costs and negotiation costs
What is the main job of a market economy?
A market economy allocates resources through the decentralized decisions of many households and firms as they interact in markets
What was the famous takeaway proclaimed by Adam Smith in “The Wealth of Nations?”
Each of the households and firms in a market economy act as if “ led by an invisible hand “ to promote general economic well being
How does the invisible hand of the market function?
How can the government improve market outcomes?
By enforcing property rights, i.e. people are less likely to work if they are at risk of their property being stolen.
Industrial Nationalism article, what is it about?
It is about Argentian havinf vast amounts of shale gas, but international companies are too scared to enter the market due to the nationalization efforts taken by the government against MNCs who previously operated in that region
What is market failure?
