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Econ > Topic 1- Ten Principles of Economics > Flashcards

Topic 1- Ten Principles of Economics Flashcards

1
Q

Economics

A

The study of consumer, business, and government choices to attain goals given scarce resources

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2
Q

Scarcity

A

Unlimeted wants and lemited resources to fulfill those wants

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3
Q

Why do we make choices?

A

Because of the bottom line: there are not enough resources available fro everyone to have everything

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4
Q

Microeconomics

A

Examining the behaviours and decisions of an individual, a firm, or a market!

CONCERNS: -how they make choices -how they interact -how governments influence their choices

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5
Q

Macroeconomics

A

Study of the eocnomy as a whole and the behaviour of the aggregate sectors such as consumers, producers, and government

GDP! Inflation, unemployment, the business cycle

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6
Q

?????2008 financial crises

A
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7
Q

Principle 1: People Face Tradeoffs

A

Making decisions is about comparing costs and benefits of choices, every choice has a tradeoff

Society has tradeoffs: spending money on army less on infrastructure

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8
Q

Principle 1: Tradeoffs- WHAT IS SOCIETIES BIGGEST TRADEOFF?

A

EFFICIENCT AND EQUITY! efficiency: getting max benefits from resources

equity: resources benefits being distributed fairly among oscietys members

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9
Q

example of efficiency vs equity

A

Progressive taxation (creates equity but forces tradeoff in efficiency bc rich wont work as much since it is taxed off)

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10
Q

Principle 2: the cost of something is what you give up to get it

A

When you make a decision, you cnanot make another decision! You have used your scarce resources for the first decision already

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11
Q

Principle 2- The cost of something- what is the biggest cost?

A

THE OPPORTUNITY COST! you give up the chance and think about what could have been done with waht was given up

The opporutnity cost is the value of the next best alternative, every time you make a decision (the implicit cost of decision mkaing)

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12
Q

Principle 2- The 2 types of cost

A

Explicit cost- monetary expense
Implicit cost- Opportunity cost, what if the resources have been used in adifferent way

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13
Q

Principle 3: rational people think at the margin

A

People make choices based on increading marginal benefit at the marginal cost!!!
MB>= MC!!

MB MUST BE GREATER THAN OR EQUAL TO COST OR WHY WOULD U DO THAT

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14
Q

when do business operate at the margin

A

ALWAYS EVEN FOR A FRACTION OF A CENT!!

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15
Q

PRINCIPLE 4: People respond to incentives

A

Incentive matter, the desire for personal gain is a potent motiavtion

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16
Q

Principle 5: Trade can make everyone better off

A

Comparative afvantage: trading when you are specializing in one good can ebnefit everyone, bc they all the same!

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17
Q

Principle 6: Markets are usually a good way to organize economic acitivty

A
  • markets answer the three economic questions
  • EITHER THE CONSUMERS, FIRMS, GOVT OR MORE THAN OEN DECIDES
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18
Q

3 PRINCIPLE QUESTIONS OF EVERY MARKET

A

What is bein gproduced
HOW WILL THEY BE PROFUCED
WHO GETS WHAT IS PRODUCED

19
Q

What does every single choice come wit?

A

AN OPPORUTNITY COST!

20
Q

Answer ECON Q1: WHat good are being produced?

A

DETERMINED BY CONSUMERS FIRMS AND GOVERNEMTNS, EVERY CHOICE HAS AN OPP COST

21
Q

Econ q2: how will the goods be produced?

A

-more workers or more machinery? (LABOUR INTENSIVE OR CAPITAL INTENSIVE)
-where produced? outsourced?

22
Q

Who will recieve the goods and services produced?

A

Largely depends on how income is distributed
-Is there redistribution?

23
Q

Market economy

A

-Laissez-Faire Adam SMith Capitalism!
-limited governemnt red tape and freedom of choices
-PRICES (personal responsibility, private property, rule of law, competition, self interest, economic freedom)

24
Q

market:

A

a group of buyers and sellers of a good/service as well as the rules of how they interact

25
Q

sOCIALISM

A

-kARL marx
-Govt decides
-equity

26
Q

Voluntary echvange

A

Both buyer and seller are made better off by transaction (MARKET ECONOMY PRINCIPLE)

27
Q

Voluntary echvange

A

Both buyer and seller are made better off by transaction (MARKET ECONOMY PRINCIPLE)

28
Q

Productive efficiency:

A

wHEN A GOOD OR SERVICE IS PRODUCED AT THE LOWEST POSSIBLE COST (MARKET ECONOMIES)

29
Q

Allocative Efficiency (ID O NOT UNDERSTAND)

A

-profuction is consistent with consumer preferences

MARGINAL BENEFIT OF THE LAST UNIT OF PRODUCTION OF A GOOD OR SERVICE IS EQUAL TO MARIGNAL COST OF PRODUCING IT (MARKET PRINCIPLE)

30
Q

mIXED eCONOMY

A

eCNOMIC DECISION RESULT FROM THE INTERACTION OF BUYERS AND SELLERS INMARKEY

31
Q

Principle 7: governemnts can sometimes improve market outcomes

A

Roles:
-Promoting efficiency (public policy can protect against market failure and promote efficiency)
-promoting equity (govt may alter market outcomes to promote equity!!! tax welfare redistirbute)

32
Q

Market failure

A

when makret failsto allocate scarce resources efficeintly
WHY?
1. EXTERNATILITIES: profuction/consumption of a good affects bystandesr (pollution)
2. Market power- single buyer.seller has substantial influence of market price (MONOPOLY)

33
Q

What determines Labour profuctivity

A
  1. Physical Capital: stock of equipment/ structure to produce goods
  2. Human capital: accumulated knowledge and skills of workers (education and training)
  3. Natural resources: inputs into production of goods produced by nature (land rivers mineral deposits)
  4. Tehc change: quanittiy of output a firm can profudece using quanitity of inputs

Physical, Human, Technological and Natural Capital > Labour productivity >PPP

34
Q

Principle 8: a countrys standard of living depends on its ability to produce goods and services

A

Rich countries are rich because there are more PRODUCTIVE (Assessed by the GDP AND PPP)

Labour productivity is the quanitty of goods and services profuced in ohe hour/one wokrer= determines the Standard of living in nation

35
Q

What determines the standard of living/ppp of a country?

A

THE LABOUR PRODUCTIVITY: quanitiyiy of goods and services that can be produce by 1 worker/1 hour

36
Q

Principle 9: Prices rise when the govt prints too much money

A

THIS IS INFLATION (2 types)
1. Demand Pull: increasing demand for goods > govt print more moeny

  1. Cost Push: increasing cost of production, firms raise their prices > govt prints more money
37
Q

What does central bank printing more money di?

A

SHORT RUN: Monetary expansion leads to increasing output and decreasing interest rate as more money circulates, but leads to increase price level bc money has less value

LONG RUN: all prices permanentaly increased, no effect on output/interest rate

38
Q

Principle 10: society faces a short run tradeoff between inflation and umenployment

A

During expansion:
Total production, emplyment, incomes are increasing= low unemplyment bc JOBS ARE BEING CREATED
Demand for goods increase, prices increase= high inflation

During recession:
Total production emplyment and income are decreasing= high unemplyment
Demand for goods decease, spending decreases, prices decrease= deflation

39
Q

2 biggest soceital tradeoffs

A

EFFICIENCY VS EQUITY

INFLATION AND UNEMPLOYMENT

40
Q

What are three causes of inflation

A

DEMAND PULL
COST PUSH
EXCESS MONAY

41
Q

3 CATEGORIES for 10 principles of econ:
The principles of decision making

The principles of interactions among people

The principles of economy as a whole

A
  1. People Face Tradeoffs
  2. The cost of a good is what you give up to get it
  3. Incentives Work
  4. Rational people think at the margin
  5. Trade can make everyone better off
  6. Markets are usually good way to organize economic activity
  7. govts can sometimes improve market outcomes

8.The standard of living in a country is determined by the productivity
9. Short run trade off between inflaiton and unemployment
10. Prices rise when govt prints too much MONAY

42
Q

Why is marginal benefit of water low while marginal ebenfit of diamiond is high?

A

The marginal benefit, in turn, depends on how many units a person already has. Water is essential but the marginal benefit of an extra cup is small because water is plentiful

43
Q

Efficiency vs Equity in terms of pie

A

Efficiency changes size of pie (bigger vs smaller)

Equity refers to how many pieces pie is cut into

Econ (20 decks)

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