Week 0 - Foundations and Models Flashcards
What is offshoring?
The process of firms moving the production of goods and services outside of their home country (also referred to as outsourcing).
What is economics?
The study of choices people and societies make to attain their unlimited wants, given the scarce resources. Economics studies how people make choices and interact in markets.
What is a market?
A market is a group of buyers and sellers of a good or services and the institution or arrangement by which they come together to trade.
What is scarcity?
The situation in which unlimited wants exceed the limited resources available to fulfill those wants.
What are resources?
Inputs used to produce goods and services, including natural resources (such as land, water and minerals), labour, capital, and entrepreneurial ability. These are also referred to as factors of production.
What are the three key economic ideas?
- People are rational.
- People respond to economic incentives.
- Optimal decisions are made at the margin.
What is a marginal analysis?
Analysis that involves comparing marginal benefits and marginal costs.
What is a trade-off?
The idea that, because of scarcity, producing more of one good or services means producing less of another good or service. Trade-offs force society to make choices.
What is opportunity cost?
The opportunity cost of any activity is the highest-valued alternative that must be given up to engage in that activity.
What is a centrally planned economy?
An economy in which the government decides how economic resources will be allocated.
What is a market economy?
An economy in which the decisions of households and firms interacting in markets allocate economic resources.
What is consumer sovereignty?
The concept that in a market economy it is ultimately consumers who decide what goods and services will be produced.
Why does consumer sovereignty occur?
Because firms must produce goods and services that meet the wants of consumers, or the firms will go out of business.
What is a mixed economy?
An economy in which most economic decisions result from the interaction of buyers and sellers in markets, but in which the government plays a significant role in the allocation of resources.
What is productive efficiency?
When a good or service is produced using the least amount of resources.
What is allocative efficiency?
When production reflects consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
What is dynamic efficiency?
When new technology and innovation are adopted over time.
What is voluntary exchange?
Occurs in markets when both the buyer and seller of a product are made better off by the transaction.
What is equity?
The fair distribution of economic benefits between individuals and between societies.
An efficient outcome may or may not be considered by society to be equitable.
What are economic models?
Simplified versions of reality used to analyse real-world economic situations. Economic models make behavioural assumptions about the motives of consumers and firms.
How are economic models developed?
To develop a model, economists generally follow these steps:
1. Decide on the assumptions to be used in developing the model.
2. Formulate a testable hypothesis.
3. Use economic data to test the hypothesis.
4. Revise the model if it fails to explain the economic data.
5. Retain the revised model to help answer similar economic questions in the future.
What is the hypothesis of an economic model?
A hypothesis in an economic model is a statement that may be either correct or incorrect about an economic variable. In testing hypotheses, economists distinguish between correlation and causality.
What is an economic variable?
Something measurable that relates to resources that can have different values, for example, wages, prices or hours worked.
What is positive analysis?
Analysis concerned with what is, involving value-free statements that can be checked by using the facts.
