Lecture 1: Scarcity and Choice Flashcards
Economics is the study of the________________ .
production, exchange, and consumption of goods and services
Economists study the economy. In the economy, goods and services are produced, exchanged, and consumed.
Microeconomics looks at the production, exchange, and consumption of_______________________________.
goods and services at the level of an individual producer of the good or the market in which a single good or service is exchanged or an individual consumer of a product.
-Key word is individual; macroeconomics deals with the behavior of the individual entities that make up the economy
Macroeconomics deals with the _____________________.
Macroeconomics deals with the entire national economy.
Rather than being concerned with the production of a single good or service, say, vacuum cleaners, macroeconomics looks at the total production of all goods and services including vacuum cleaners, coffee makers, and frozen pizza.
Inflation Rate
inflation rate, a measure of how the average price of all goods and services has changed.
Economics is the study of the allocation of______________________.
Economics, the study of the allocation of scarce resources among competing and insatiable needs so as to maximize welfare.
Economics resources are used to produce goods and services. There are three categories of economic resources:
land - raw materials and natural resources
labor - workers
capital - buildings, machinery, factories, equipment
We assume that people have unlimited wants because__________.
There is always something that people want more of.
Since we have a limited amount of resources, we can produce a limited amount of goods and services. No matter how large that amount is, we cannot produce enough to satisfy everyone’s unlimited wants. This is known as ________________________.
scarcity and much of economics looks at how people cope with scarcity.
For an accountant, the cost of an activity is the
For an accountant, the cost of an activity is the out-of-pocket expenses, all of the money paid to undertake the activity.
For an economist, the cost of an activity
For an economist, the cost of an activity is everything given up for it, including opportunity costs.
Most decisions are not of the all or nothing variety. Most decisions involve choosing a little more or a little less of something. Rational decision making_____
making involves comparing the costs and benefits of that incremental change.
Marginal Costs
Loosely put, the additional costs of undertaking some activity are called the marginal costs.
Marginal Benefits
The additional benefits of engaging in that activity are called the marginal benefits. If the marginal benefits are greater than the marginal costs, do it; otherwise, do not.
-If the marginal benefits are greater than the marginal costs, do it; otherwise, do not.
When marginal costs and benefits do not agree with what has occurred, there are two possible explanations.
One, you’ve all behaved irrationally. You came to class knowing that the marginal benefits were smaller than the marginal costs. However, it is not a good idea to assume that so many people have behaved irrationally. So, second, we have incorrectly measured the costs and benefits.
