Microeconomia Flashcards
WHAT IS ECONOMICS?
It is the social science that studies the choices that individuals, companies, governments, and entire societies do to deal with shortages, as well as incentives that influence those choices and conciliate them.
Fields of economics
Microeconomics.
Macroeconomics.
Incentive
Is a reward that encourages (to do) or a punishment that discourages (not to do) an action.
Microeconomics
Is the study of choices individuals and businesses make, the way in which these choices interact in the markets and the influence that governments exert on them.
Macroeconomics
Is the study of performance of the national and global economies.
Goods and services
The objects that people value and produce to satisfy human needs.
Goods
Physical objects, for example, golf balls, cars, etc
Services
Are tasks that people perform, such as a haircut, teaching or advising, etc.
Factors of production
The essential resources required to produce goods and services
The factors of production are grouped into four categories:
-Land: The natural resources
-Labor: The time and effort that people spend producing goods and services
-Capital: The tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services
-Business skills: The human resource that organizes labor, land and capital
For whom to produce?
Whoever gets the goods and services produced depends on people’s income.
Exchange
Implies to give up one thing to get another.
How does the decision-making process of companies impact the production of goods and services?
The decisions made by companies influence the methods, technologies, and strategies employed in the production of goods and services, ultimately shaping the efficiency, quality, and sustainability of their output.
What do choices cause?
Change, changes over time
Opportunity cost
Is the most valuable alternative that we give up in order to get something.
Marginal benefit
The additional satisfaction or value you get from consuming or doing one more unit of something
Marginal cost
Is the additional cost incurred when producing one more unit of a product or providing one more unit of a service.
To what our choices respond?
To incentives
What’s the fundamental idea of economics?
Is that we can predict how choices will change just by analyzing changes in the incentives.
What are incentives key to?
To reconcile personal interest and social interest.
What’s one of the challenges for economists?
Is to devise incentive systems that result in self-interest-based choices that serve the social interest.
If human nature is already determined and people act based on their self-interest, how can we take care of the social interest?
Economists highlight the crucial role that institutions play in influencing the incentives
Primary institutions
Constitute a legal system that protects private property, as well as markets that allow voluntary exchange between people
What do Economists try to discover?
How the economic world works and, to achieve this goal (like all scientists), they make a distinction between two types of statements:
-What it is.
-What it should be.
Positive statements
Is a factual statement that can be objectively tested and verified. It describes what is, was, or will be without expressing a judgment or opinion.
Normative statements
Statements about what must be
Goal of the economic science
Is to discover the positive statements that are consistent with what we observe and help us understand the economic world.
This can be divided into three steps (economic science)
-Observation and Measurement
-Model-building
-Model-testing and Verification
The first step in understanding how the economic world works is:
to observe it.
The second step in understanding how the economic world works is:
To build a model.
Economic model
A brief explanation of the economy that highlights only the important parts for a particular use.
The third step in understanding how the economic world works is:
Testing the models.
Economic theory
It connects economic models with the real world.
How can we evaluate a model’s accuracy and develop economic theories by comparing its predictions to facts, which may either align or conflict with them?
The predictions of a model could correspond to the facts, or could also be in conflict with them. By comparing the predictions of the model with the facts, we can test the veracity of the model and develop an economic theory.
Year and who created Economics:
Born in 1776 with the publication of “The Wealth of Nations” by Adam Smith
ceteris paribus
“all other things being equal” or “holding other things constant”. It’s used to isolate the effect of one specific variable or factor while assuming that everything else remains unchanged.
Why is ceteris paribus important?
Maintaining stability in all other factors is crucial in many activities, including scientific progress. Economic models, like those in other sciences, let us isolate the impact of one variable at a time. However, in economics, the ‘ceteris paribus’ condition can pose challenges when testing such models.
What to do when Ceteris Paribus becomes a problem when trying to test a model?
1.They look for situations where everything else is similar except for the thing they want to study. For example, they might compare how unemployment benefits affect unemployment rates in the United States and Canada, assuming that other factors are mostly the same.
2.Economists use statistical tools, which are like math techniques, to analyze data.
3.When possible, economists do experiments. They put real people, often students, in situations where they have to make choices, and they change one thing at a time to see how it affects their decisions.
Fallacies
Errors of reasoning that can lead to erroneous conclusions.
