Unit 1 Introduction to Economics Flashcards
social science
the academic study of society and human behavior
microeconomics
examines the behavior of individual decision-making units in the economy
two main groups of decision makers
consumers, producers
macroeconomics
examines the economy as a whole to obtain a broad or overall picture of the economy
scarcity
the idea that resources are insufficient to satisfy unlimited human needs and wants
economics
the study of how our scarce resources can best be used in order to satisfy the needs and wants of human beings
efficiency
refers to making the best possible use of scarce resources to avoid resource waste
equity
the idea of being fair/just
economic well-being
the levels of prosperity, economic satisfaction, and standards of living among the members of a society
sustainability
the ability of the present generation to satisfy its needs by the use of resources and non-renewable resources without limiting future generations’ ability to satisfy their own needs
change in economics
the economic world is in a continual state of flux, it is subject to continuous/profound change at technological, economic and social levels
interdependence
refers to the idea that economic decision-makers interact with and depend on each other for the achievement of their economic goals
intervention
the government becomes involved with the workings of markets, because markets on their own often cannot achieve important societal goals
three basic economic questions
what to produce? how to produce? for whom to produce?
factors of production
land, labor, capital, entrepreneurship
land
all natural resources e.g. minerals, forests, rivers, underground water
labor
physical and mental effort of workers to produce a good or service
capital
machinery, tools, factories, airports, power plants
entrepreneurship
risk-taking, human skill to organize the other three factors to produce a good or service
opportunity cost
the next best alternative foregone when an economic decision is made
free goods
things such as air and salt water that are not limited in supply (yet)
centrally planned economies
an economic system in which governments decide what to produce, how to produce it, and who receives it
disadvantages of centrally planned economies
little economic efficiency, freedom, growth, and equity
laissez-faire/market capitalism
an economic system in which individuals and firms allocate resources and production resources are privately owned
disadvantages of market capitalism
anything can be produced, ethical values are neglected, lack of sustainability
public resources
the parts of the economy that are under the ownership of the government/state
private resources
the parts of the economy that are under the ownership of groups of individuals e.g. consumers (households), firms (businesses)
Karl Marx
philosopher who believed that capitalism was unsustainable and flawed for most people
what PPC stands for
production possibility curve
what the PPC represents
the maximum production output obtained with full employment resources
what the PPC shows
scarcity, law of increasing opportunity cost, a perfectly efficient economy produces on the curve, economic growth = outward curve
law of increasing opportunity cost
to produce more of one good, a successively larger amount of the other good must be sacrificed
“pick the lowest hanging lemons first”
use the labor units that will result in the cheapest opportunity cost first
constant opportunity cost
a situation in which the production of two different goods is the same, linear graph
actual growth
a movement inside the PPC caused by a reduction in unemployment and higher efficiency
growth in production possibilities
an outward shift of the PPC caused by an increase of FOPs/quality of FOPs
national income
the sum of all final goods and services produced in a year, in terms of national currency
flow
an economic measure over a period of time
expenditure
money used for production output
leakages
the savings, taxes, and import spending that remove spending from the circular flow of income
injections
the investment, government spending, and export revenues that add spending to the circular flow of income
normative statements
subjective statements that can contain biases and cannot be proven right or wrong
value judgement examples
“should”, “fair”, “too much”
positive statements
objective statements that are testable where a dependent variable is quantified and measured
utility
the satisfaction we gain when we buy something
marginal benefit
the benefit that arises from a one unit increase in an activity which is measured by what you are willing to give up to get one additional unit
the marginal benefit of an activity______ as you do more of it
decreases
logic
a method of reasoning
empirical evidence
real-world information, observations, and data that we acquire through our senses and experience
refutation
the idea that it must be possible to refute or disprove a hypothesis or theory
translation of Ceteris Paribus
“all other things (variables) being equal”
use of Ceteris Paribus
allows economists to isolate and study one variable at a time and eliminate all other possible interferences
adam smith
introduced the concept that free trade would benefit individuals and society as a whole
utilitarianism
an ethical theory that determines right from wrong by focusing on outcomes
principle of utility
an ethical theory which established whether something was good or bad according to its benefit for the majority of people
Jeremy Bentham
founder of modern utilitarianism
say’s law
supply creates its own demand, a theory that claims that the economy tends toward full employment in the absence of any government intervention
John Stuart Mill
created a more sophisticated version of utilitarianism where the quality of pleasure and quantity of people doing it is involved
20th century - Keynesian Thinking
an economy left on its own would not lead to full employment and the government would have to intervene
20th century - The Monetarist
government intervention prevents the economy from reaching a state of full employment on its own
21st century - Behavioral Economics
argued that consumers do not have the necessary information available and that the human mind works in irrational ways
21st century - The Circular Economy
idea that goods should be produced in a way where they can be repaired rather than thrown away
