Lesson 1 Flashcards
what is economics?
Economics is the study of the use of scarce resources to satisfy unlimited human wants.
what is scarcity?
insufficiency with respect to need
what is efficiency?
state of achieving maximum productivity with the given resources
what is tradeoff ?
giving up of one thing in return for another
What are the three fundamental problem of economics?
What - commodities/goods are produced and in what quantities?
How - are the goods produced?
For whom - are the goods produced?
What are the three different economic organizations? Differentiate.
Market Economy, Command Economy, and Mixed Economy
Market - individuals and firms make fundamental economic decisions
Command - government is in charge and makes the important decisions about production and distribution
Mixed - mix of both market and command economy
what is an economic model?
description of economic reality that illustrates, often in terms of mathematical terms, the relationship among variables while dispensing irrelevant details
differentiate the two types of economic variables
exogenous variables - given; determined outside the model
endogenous variables - variables that the model tries to explain are determined inside the model
what determines the answer to the fundamental economic questions in a market economy?
price, markets, profits, and incentive
What is equilibrium condition?
• state of balance and stability
Differentiate positive and normative economics
Positive - describes what is
Normative - prescribes what ought
What is Macroeconomics?
The study of the behavior of the economy as a whole.
What is Macroeconomics?
The study of the behavior of the economy as a whole.
What is GDP?
It measures the market value of all final goods and services produced in an economy for a specific period.
Nominal vs Real GDP
Nominal - measured using current prices
Real - measured using some constant (benchmark) price
