Unit 1 Flashcards
MACRO-economics
Studying the whole economy
Marginal Utility
Inputs are valuable because the end product brings utility
Water-Diamond Paradox
Why are diamonds more expensive than water? Scarcity of diamonds and surplus of water.
Keynesian Economics
Govts should step in and smooth out business cycles
Monetarism
Govt should maintain consistent growth in the supply of money to smooth out cycles
Austrianism
Focuses heavily on subjectivism and how prices communicate widely dispersed knowledge.
Classical Economics
Aristotle to Karl Marx
Focused on the production of goods; more inputs = higher value.
“Labor Theory of Value”
Neoclassical Economics
3 economists (separate in Europe) developed the theory that value is derived from marginal utility.
The Marginal Revolution
Split classical and neo-classical economics
5 Key Economic Assumptions
1) scarcity
2) Due to scarcity, choices must be made (trade off)
3) Everyone’s goal is to make choices that maximize their satisfaction (self interest)
4) Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice
Opportunity Cost
Most desirable alternative given up when you make a choice.
Allocate
Distribute
Consumer Goods
Created for direct consumption
Ex) pizza, video games
Capital Goods
Created for indirect consumption. Things companies buy to make consumer goods.
Ex) oven, blenders
4 factors of production
1) LAND - all natural resources that are used to produce goods and resources
2) LABOR - any effort a person devotes to a task for which a person is paid.
3) CAPITAL - physical and human
4) ENTREPRENEURSHIP- ambitious leaders that combine the other factors of production to create goods and services.