microeconomics exam one Flashcards
lessons one-three in microeconomics
what is economics?
a social science that studies production and trade observing individual values and social order
what is spontaneous order?
order that is the product of human action, not human desire
what is positive analysis?
analysis that attempts to describe the way things are in reality
reality vs. subjective value
what is normative analysis?
analysis that describes a value judgement
reality vs. subjective value
what is a theory?
an abstract explanation to some phenomenon
what is society?
a group of people who have moral, political or economic relationships with each other
what is social system?
a set of rules that determine the physical force in human relationships
what is market economy?
a social system in which resources are privately owned and controlled
what is command economy?
a social system in which resources are collectively owned and controlled (typically through the government)
what is property right?
a moral and legal right to control a resource, and exclude others from it.
based on the concept of consent (self ownership)
what is a mixed economy?
a social system in which some resources are privately owned and controlled, and some are owned or controlled by the government
what are the four starting points of economics?
- scarcity
- unlimited desires
- methodological individualism
- rational choice
what is scarcity?
four starting points of economics
the concept that the amount of goods available is not sufficient to satisfy all human desires
(there will always be scarcity. must use basic tradeoff)
make choices
what is unlimited desires?
four starting points of economics
the concept that no matter what ones current circumstances, it is always possible to imagine and achieve a more desirable state of affairs
(concept of want and need on a spectrum and can differ)
human potential
what is methodological individualism?
four starting points of economics
the principle that the individual human being is the basic unit of research in social studies
(to be more precise)
what is rational choice?
four starting points of economics
the principle in which people pursue their own values
what is price system?
a network of interrelated prices of goods and services
price system is the conductor of the economy, which is the symphony
what is the exchange of equivalents theory?
the theory that people exchange one good for another when both parties value the goods equally
what is the just price theory?
the theory that there is a single just price at which each good should be sold
some mercantalists believe:
- social order requires government planning
- money constitues real wealth for a nation
- exchange is a zero-sum game
- there is a “public interest” seperate from the interest of actual individualists
key points that mercantalism is revolved around
what is nominal value of money?
face value of a certain amount of money
what is real value of money?
the goods and sevices that can be purchased with a certian amonut of money
what is a zero-sum game?
a situation in which for one party to gain, the other must lose
ie. poker, tennis, trade
what is mutally beneficial exchange?
an exchange that benefits both parties
supermarket (both are doing a service to one another)
some of the main ideas of “the classical thought of economic thought” are
- people are self-interested
-individuality promotes spontaneous order
adam smith explains that in a market system, to get what you want :
there are people that pursue self interest
what is the invisible hand metaphor?
adam smiths metaphor for the power of individual self interest to create spontaneous order
what is utility?
usefullness in satisfying human desires
what is the subjective theory of price?
the theory that the price of a good is determined by utility
what is the water-diamonds paradox?
the observation that water is very useful but has a low price, while a diamond may not be very useful but has a high price
price cannot be determined by its utility use
what is labor theory value?
the theory that the price of a good is determined by its cost of production or the amount of labor used to produce it.
the more expensive something is to make, the higher the price
vice versa
what are some of the problems with labor theory value?
- how do you measure labor
- labor has a price
- it is a theory of intrinsic value
- it ignores the context of change
what is intrinsic value theory?
the theory that the value of an object is inherent to the object itself
what is the iron law of wages?
the theory that the price of labor is determined by the cost of human substinence and reproduction
what is marginal revolution?
the discovery of the theory of marginal utility
what is a good?
a useful thing that is subject for human control
requirements to be a good:
- a human need must exist
- the object must have properties that allow it to satisfy that need
- humans must know of this causal connection
- humans must have sufficient control over the object to make use of it
what is an order number?
where something falls in the production line
(where in the process is something made
what is a consumer good?
(first order good)
a good that serves our desires directly
what is a producer good?
(higher order good)
a good that is used in the production of another good
what is the structure of production?
the set of steps in which producer goodsare used to produce a consumer good
what is marginal unit?
the next unit gained or given up
what is marginal utility?
an additional utility that a person gets from having one more unit of a good, or loses from having one less unit of a group
how much happier someone would be, moving on and on
what is the theory of marginal utility?
the theory that the price of a good is determined by its marginal utility
what is ordinal ranking?
a list in order of preference
prioritize desires, where is the margins?
what is opportunity cost?
the best alternative being given up when making a choice
what is dimishing marginal utility?
as a person acquires more units of a good, the satisfaction they derive from each new unit is lower than the previous.
as you get more, they get less valuable
what is increasing marginal opportunity cost?
as a person gives up more units of a good, the satisfaction they give up with each new unit is higher than the previous
as you get less, they get more valuable
what is the range of indeterminacy?
the range of potential prices
what will satisfy both parties?
what is marketing clearing price?
a price at which anyone who wants to buy or sell can find a willing trade partner
