Lecture 1 + 2 Flashcards
Surge Pricing
A pricing method in which costs are temporarily increased as a reaction to increased demand and limited supply
The “Invisible Hand” (Adam Smith)
As households and firms interact in markets, they are led to desirable market outcomes by an “invisible hand”.
Government intervention hinders the ability of the “invisible hand” to coordinate the decisions of households/firms within an economy.
Central Planning (Communism)
Government official (i.e. “central planners”) are in the best position to allocate the society’s scarce resources.
Relationship Between Quantity and Marginal Benefit
The marginal benefit an individual/group receives from a particular good/service depends upon how many units of the good/service they already have.
Equality
A state in which resources (i.e. economic prosperity) are distributed uniformly among the members of society.
Equality can be thought of as the way society divides the economic “pie” into individual slices.
Efficiency
A state in which society is receiving the maximum benefits from its scarce resources.
Efficiency can be thought of as the size of the economic “pie”.
Guns and Butter
The trade-off between national defense and consumer goods faced by natinal governments.
Scarcity
The limited nature of society’s resources.
Because society has limited resources, it cannot produce all goods and services that all people wish to have.
What is the purpose of ASSUMPTIONS?
Assumptions can simplify the complex world to make it easier to understand.
SIMPLIFICATION
Demand Shift: Change in Income
An increase in income will shift the demand curve to the right (outward).
A decrease in income will shift the demand curve to the left (inward).
Circular-Flow Diagram
A visual model of the economy that shows how money flows through the market (i.e. through households and firms).
Two Decision Makers: Households and Firms
Two Markets: (Goods and Services) and (Factors of Production)
Market for Goods and Services
Market in which firms are the sellers and households are the buyers.
The Goods/Services Market comprises one-half of the Circular-Flow model of an economy.
Market for Factors of Production
Market in which firms are the buyers and households are the sellers.
Efficient Level of Production
The market is producing the most it possibly can from the scarce resources available.
Slope of Production Possibilities Frontier
The opportunity cost of producing an additional unit of Good X.
Effect on PPF: Technological Advance
An outward shift of the PPF curve because the economy can produce more of a good for a given quantity of labor/input.
Technological advance results in economic growth because (at certain points) more of both PPF goods can be produced.
Microeconomics
The study of how households and firms make decisions (and how they interact within markets).
Macroeconomics
The study of economy-wide phenomena (including inflation, unemployment, and economic growth).
Positive Statement
An attempt to describe the world as it is.
DESCRIPTIVE
Positve statements can be confirmed or refuted by examining existing evidence.
Normative Statement
An attempt to prescribe/describe how the world should be.
PRESCRIPTIVE
Normative statements cannot be confirmed or refuted by examining evidence/data.
Rent Control
Controls adversely impact the quantity/quality of housing and are costly strategies (for helping the neediest in society).
Demand
Displays the effect of a good’s price on the quantity of the good consumers want to purchase (for a given level of income).
