Principles of Economics chapter 1 Flashcards
What is a market economy
A market economy is an economy in which decisions about production and consumption are made by individual producers and consumers.
What is the invisible hand
The invisible hand refers to the way in which the individual pursuit of self-interest can lead to good results for society as a whole.
What are microeconomics
Microeconomics is the branch of economics that studies how people make decisions and how these decisions interact.
What are the aspects of microeconomics?
Aspects of Microeconomics:
* Supply and Demand
– Production Theory
– Demand theory
* Elasticity
* Opportunity Cost
* Marginality/Marginal Revenue
* Market Structure: Types of Market
* Corporate Structure/Incentives
* Theory of the Firm
* Game Theory
* Information economics
* Labor Economics & Labor markets
* Labor Laws/Policy
* Corporate Legislation (can be macro)
* Welfare Economics & Externalities
What is a market failure
When the individual pursuit of self-interest leads to bad results for society as a whole, there is market failure.
What is a recession
A recession is a downturn in the economy.
What are macroeconomics
Macroeconomics is the branch of economics that is concerned with overall ups anddowns in the economy.
What is meant with equity
Equity means that everyone gets his or her fair share. Since people can disagree about what’s “fair,” equity isn’t as well defined a concept as efficiency.
What is economic growth
Economic growth is the growing ability of the economy to produce goods and services, leading to higher living standards.
What is meant by individual choice
Individual choice is the decision by an individual of what to do, which necessarily involves a decision of what not to do.
What is a resource
A resource is anything that can be used to produce something else.
What is sacre
Resources are scarce — not enough of the resources are available to satisfy all the various ways a society wants to use them.
What is a opportunity cost
The real cost of an item is its opportunity cost: what you must give up in order to get it.
When do you have a trade-off
You make a trade-off when you compare the costs with the benefits of doing something.
What is marginal decisions
Decisions about whether to do a bit more or a bit less of an activity are marginal decisions.
What is a incentive
An incentive is anything that offers rewards to people to change their behavior.
What is interaction of choices
Interaction of choices — my choices affect your choices, and vice versa — is a feature of most economic situations. The results of this interaction are often quite different from
what the individuals intend.
What is trade
In a market economy, individuals engage in trade: they provide goods and services to others and receive goods and services in return.
What are gains from trade
There are gains from trade: people can get more of what they want through trade than they could if they tried to be self-sufficient.
What is specialization
An increase in output is due to specialization: each person specializes in the task that they are good at performing.
What is a equilibrium
An economic situation is in equilibrium when no individual would be better off doing something different.
When is a economy efficient
An economy is efficient if it takes all opportunities to make some people better off without making other people worse off.
What are the 12 basic principles of economics
- Choices are necessary because resources are scarce
- The true cost of something is its opportunity cost
- ‘How much’ is a decision at the margin
- People usually respond to incentives
- There are gains from trade
- Markets move toward equilibrium
- Resources should be used efficiently to achieve society’s goals
- Markets usually lead to efficiency
- When markets fail government intervention can improve society’s welfare
- One person’s spending is another person’s income
- Overall spending sometimes get out of line with the economy’s productive
capacity - Government policies can change spending
