Unit One Flashcards
Positive statement
Claims that attempt to describe the world as it is
Claim is reinforced by data
Facts
Normative statements
Claims that are made to prescribe how the world should be
Opinions
Economic system
An organized way of providing needs and wants to a society
Society has infinite demands, finite resources
Three big questions of economics
What to produce
How to produce it
For whom to produce it
Three economic systems
Traditional, command, market (us is market based but not all though)
Command economy
A central authority decides the what, how, and for whom
The decisions are made by the government, people have little choice
Market economy
People and private firms decide what, how, and for whole
Markets must exist in this economy
Market
A mechanism that allows people to exchange goods and services
Advantages are efficiency, disadvantages are no equity
Mixed economy
An economic system that adopts features of both a command economy and a market economy
All world economies are mixed economies to some degree
Specialization
Also known as the division of labor
Everyone works in a field in which he/she has a comparative advantage
People use their income to purchase other goods
Trade offs
With every decision there is a choice (a trade-off). Everything has a cost
“There is no such thing as a free lunch”
People behave rationally
People make choices to benefit themselves (and not hurt themselves)
Needs
Peoples’ needs are highly individualized
Self interest does not equal greed
People are self interested
Self interest to Adam smith was discussed within an ethical context
Ceteris paribus
Latin for with all things being equal
We study economic events frozen in time with all variables held constant
