Unit 1 Econ Flashcards
Microeconomics
Focuses on individual decision-making units and how they interact
Macroeconomics
Explores the economy as a whole
Opportunity cost
The cost of choosing; what you give up by choosing one option
Endowment
Natural and human resources from which all goods and services must be produced
-finite, but not fixed (scarcity)
Utility
Satisfaction; economists assume maximizing this drives individual choice; measured in utils
Profit motive
The tendency of people to engage in activities that will lead to monetary gain.
Consumer sovereignty
The economic power of the individual in a free market
Government regulation
Requirements the government places on private firms and individuals to achieve the government’s goals
Social & economic goals
Freedom
Security
Equity
Growth
Efficiency
Stability
Marginal Utility
Additional increment of utility associated with consuming one more unit of a good or service
Margin
In a succession of units, the specific unit you are focusing on
Total Utility
The total satisfaction derived from consuming a specific quantity of a good or service; the total of marginal utilities for all individual units consumed
Initial decision
Over-simplified decision-making process based on utility (consume until marginal utility =0)
Bliss point-maximization of utility
Scarcity
The fixed amount of goods or services available
Traditional economy
An economic system in which traditions, customs, and beliefs help shape the goods and services the economy produces, as well as the rule and manner of their distribution also referred to as a subsistence economy, a traditional economy is defined by bartering and trading
Command economy
An economic system in which the means of production are publicly owned and economic activity is directed by a central government or portion of the government
Market economy
An economic system in which the forces of supply and demand determine what goods and services are produced
Mixed economy
An economy which practices characteristics of both command and market economies; supply and demand largely influence the economy, but there is government intervention to meet certain economic goals
Goods
Objects that can fulfill human wants/needs, provide utility
Services
Economic activity that is intangible; provides utility, but cannot be stored
Satiate
Satisfy
Bliss point
Maximization of Utility
Marginal analysis
Evaluating the impact of one additional unit
Util
A measure of utility (this is an abstract concept)
Diminishing marginal productivity
Initially, one input increases the initial successive units of input toward the output, but eventually this will add to less output
Balancing at the margin
Maximizing utility in light of scarcity
Discounting the future
Utility diminishes the further in the future that utility is realized
Oligopoly
a market characterized by a small number of firms who realize they are interdependent in their pricing and output policies
Monopoly
power of being the only seller
Monopsony
power of being the only buyer; not a price taker
Risk
anything that affects the outcome of your choices that can associated with a probability
Risk perception
how our experiences (socialization, advertising, etc.) impact how we value risk
Specialization
individuals dividing up labor within/across trades
Division of labor
increases productivity as individuals are better able to become more dexterous when they focus on one task
Absolute advantage
what an individual/nation is absolutely better at
Comparative advantage
the ability to produce a good at a lower opportunity cost that the person or country one trades with
Unjust outcomes
unfair outcomes due to inequality of the implementation of rules
Assumptions
an abstraction that simplifies a scenario
Strong assumptions
unrealistic assumptions (weak assumptions are more realistic); to relax assumptions we go from strong to weak assumptions
Consumption
the act of deriving utility (sometimes using things, but only with goods)
Constrained Optimization Problem
a situation where one maximizes utility in the face of scarcity
Commutative justice
fairness of the rules by which the “market game” is played
Commodity money
items that function as money but are also valuable themselves
Fiat money
items not valuable as a commodity but function as money because a government states that they are usable for debts
Supply
(S) the quantity supplied at certain prices; different than quantity
