Microeconomics: Chapter 1 Flashcards
What is the #1 problem in the world?
There are not enough resources.
What does production create?
Pollution.
What is scarcity?
When unlimited wants exceed limited resources (unable to fulfill wants).
What is the other word for satisfaction?
Utility
What are the 3 important ideas?
- People are rational - they only do things if benefits outweigh the costs (marginal analysis)
- People respond to economic incentive - people are more likely to do something if its cheaper
- Optimal decisions are made at the margin - continue activity until marginal benefit = marginal cost
What is trade-off?
Producing more of one good means producing less of another.
What is opportunity cost?
The highest value alternative that must be given up to engage in another activity.
What are the 3 fundamental questions?
- What goods/services will be produced?
- Who will produce them?
- Who will receive said goods and services?
What is productive efficiency?
A good or service being produced at the lowest possible cost.
What is allocative efficiency?
A state of economy in which production is in accordance with consumer preferences.
What is voluntary exchange?
A situation where both the buyer and seller benefit from exchange.
What is equity?
A fair distribution of economic benefits.
What are the steps in creating a model?
- Pick assumptions used to develop model
- Formulate testable hypothesis
- Use economic data to test hypothesis
- Revise model
- Retain model to use in future
What is positive analysis?
Analysis of facts to establish cause and effect.
What is normal analysis?
Involving judgments about what the economy should be like. Based on subjective beliefs.
