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2. D Macroeconomics > Unit 1: Introduction to Economics (ch.1-4) > Flashcards

Unit 1: Introduction to Economics (ch.1-4) Flashcards

1
Q

Economics

A

the study of how society manages its scarce resources

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2
Q

scarcity

A

society has limited resources and therefore cannot produce all the goods and services people wish to have

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3
Q

Principle #1: People Face Tradeoffs

A

To get one thing we like we usually have to give up another thing that we like

(E.g.: efficiency vs. equity)

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4
Q

rational people

A

systematically and purposefully do the best they can to achieve their objectives, given the opportunities they have.

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5
Q

efficiency

A

society is getting the maximum benefit from its scarce resources

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6
Q

equity

A

benefits from resources are distributed fairly among society’s members

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7
Q

Principle #2: The Cost of Something is What you give up to get it

A

making decisions requires comparing the costs and benefits of alternative courses of action

Opportunity cost

(e.g. lost time)

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8
Q

opportunity cost

A

what you give up to get that item

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9
Q

Principle #3: Rational people think at the margin

A

rational people know that decisions in life are rarely black and white but usually involve shades of grey and make decisions by comparing marginal benefits and marginal costs

(e.g. airline selling seats for lower prices last minute)

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10
Q

marginal changes

A

small incremental adjustments to an existing plan of action

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11
Q

Principle #4: People respond to incentives

A

People are rational and will try to get the best deal by comparing costs and benefits and thus are affected by incentives.

e.g. if prices go up, people will not buy the product; if prices are lowered, people will buy the product

e.g. if you forget how policy affects incentives then something like this may happen: seat belt law encouraged people to drive faster since they felt safer wearing a seatbelt but unfortunately this made the road less safe for pedestrians

So remember that people will respond to incentives when you make changes otherwise you may not get the intended result.

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12
Q

Principle #5: Trade can make everyone better off

A

It is challenging to grow all your own food, make your own clothes and build your own home since the training required and the tools required costs money and time; but you can do some of the work and give that away in exchange for someone else doing something you don’t have the tools or techniques or time to do yourself.

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13
Q

Principle #6: markets are usually a good way to organize economic activity

A

Instead of having a central planner and communism, have the people decide what to charge and pay since it works better. They vote with their money. Then you will only make things that are actually needed and that are selling.

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14
Q

market economy

A

the decisions of a central planner are replaced by the decisions of millions of firms and households

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15
Q

Principle #7: Governments can sometimes improve market outcomes

A

government can help to enforce rules and maintain institutions that allow for a market economy (such as enforcing property rights so that people have a space to sell and make products)

  • can promote efficiency and equity
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16
Q

property rights

A

allows an individual to own and control scarce resources

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17
Q

market failure

A

the market on its own fails to produce an efficient allocation of resources

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18
Q

externality

A

the impact of one person’s actions on the well-being of a bystander

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19
Q

market power

A

the ability of a single person or firm to unduly influence market prices

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20
Q

Principle #8: a country’s standard of living depends on its ability to produce goods and services

A

almost all variation in living standards is attributable to differences in countries’ productivity

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21
Q

productivity

A

the amount of goods and services produced from each unit of labour input

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22
Q

Principle #9: prices rise when the government prints too much money

A

Inflation causes issues; inflation is caused by a growth in the quantity of money which lowers the value of the money

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23
Q

inflation

A

an increase in the overall level of prices in the economy

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24
Q

Principle #10: society faces a short-run tradeoff between inflation and unemployment

A

When money quantity is increased, higher prices occur over the long run. But short-term it is more complicated.

  • increasing the amount of money increases spending and demand for goods and services
  • with higher demand over time, firms will raise their prices but they will also increase productivity and hire more workers

So inflation may occur which is not good but this increases employment which is good.

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25
Q

business cycle

A

the irregular and largely unpredictable fluctuations in economic activity as measured by the production of goods and services or the number of people employed

26
Q

incentive

A

something that induces a person to act

27
Q

rational people

A

those who systematically and purposefully do the best they can to achieve their objectives

28
Q

circular-flow diagram

A

a visual model of the economy that shows how dollars flow through markets

29
Q

production possibilities frontier

A

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

30
Q

microeconomics

A

the study of how households and firms make decisions and how they interact in markets

31
Q

macroeconomics

A

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

32
Q

positive statements

A

claims that attempt to describe the world as it is

33
Q

normative statements

A

claims that attempt to prescribe how the world should be

34
Q

linear demand curve

A

linear equation

Price is on the y axis
Demand is on the x axis

It is standard to isolate for x in the equation instead of the usual isolating for y!

QD = a - bP
a and b are the parameters of the function and represent positive numbers
P = price
QD = quantity demanded at that price

QD = 56 - 4P for example

The D is supposed to be superscript

So sometimes P = f(QD) in some graphs when the business is looking at demand to set a price, but is QD=f(P) when they are setting a price and then trying to map what the quantity demanded would be. For example, a decrease in price increases the quantity of cones demanded shows that QD is a function of P. But they still put price on the y axis and quantity of cones on the x axis.

WHEN THEY ASK FOR SLOPE THEY ARE ASKING FOR IT ASSUMING THAT P = f(QD) with price on the y-axis and so slope is the number in front of Q not P and you may have to isolate for P to find that slope.

35
Q

absolute advantage

A

the comparison among producers of a good according to their productivity

36
Q

comparative advantage

A

the comparison among producers of a good according to their opportunity cost

37
Q

exports

A

goods and services produced domestically and sold abroad

38
Q

imports

A

goods and services produced abroad and sold domestically

39
Q

market

A

a group of buyers and sellers of a particular good or service

40
Q

competitive market

A

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

41
Q

quantity demanded

A

the amount of a good that buyers are willing and able to purchase

A lower price increases the quantity demanded

42
Q

law of demand

A

the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

43
Q

demand schedule

A

a table that shows the relationship between the price of a good and the quantity demanded

44
Q

demand curve

A

a graph of the relationship between the price of a good and the quantity demanded

45
Q

market demand

A

the sum of all the individual demands for a particular good or service

46
Q

market demand curve

A

shows how the total quantity demanded of a good varies as the price of the good varies, while all other factors that affect how much consumers want to buy are held constant

47
Q

increase in demand while price is held constant as seen on a graph

A

shifts the negatively sloped line (as one variable increases the other decreases, for example, as the independent variable demand decreases, the dependant price variable increases, or alternatively as the price drops the demand increases) to the right parallel to the last line

For the same price you have more demand so price on the y axis is the same but the demand is higher therefore that point shifts right. If you do this for every point the line will shift right.

48
Q

normal good

A

a good for which, other things equal, an increase in income leads to an increase in demand

49
Q

inferior good

A

a good for which, other things equal, an increase in income leads to a decrease in demand

50
Q

substitutes

A

two goods for which an increase in the price of one leads to an increase in the demand for the other

51
Q

complements

A

two goods for which an increase in the price of one leads to a decrease in the demand for the other

  • often pairs of goods that are used together such as gas and vehicles
52
Q

quantity supplied

A

the amount of a good that sellers are willing and able to sell

53
Q

supply schedule

A

a table that shows the relationship between the price of a good and the quantity supplied

54
Q

supply curve

A

a graph of the relationship between the price of a good and the quantity supplied

54
Q

equilibrium price

A

the price that balances quantity supplied and quantity demanded

55
Q

equilibrium

A

a situation in which the price has reached the level where quantity supplied equals quantity demanded

55
Q

equilibrium quantity

A

the quantity supplied and the quantity demanded at the equilibrium price

56
Q

surplus

A

a situation in which quantity supplied is greater than quantity demanded

57
Q

shortage

A

a situation in which quantity demanded is greater than quantity supplied

58
Q

law of supply and demand

A

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

59
Q
A

2. D Macroeconomics (6 decks)

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