Week 1 Flashcards
ECONOMICS
What are the following definitions?
Economics
Scarcity
Bottom Line
Economics: The study of choices people make to attain their goals, given their scarce resources
Scarcity: A situation in which unlimited wants exceed the limited resources available to fulfill those wants
Bottom Line: We don’t have enough money, time, resources, etc. to do everything for everyone so we have to make choices
THE ECONOMY
What are the following definitions?
An economy
Market
An Economy: A set of interrelated consumption and production activities in order to maintain a standard of living.
Market: A group of buyers and sellers of a good or service and the institutions or arrangements by which they come together to trade
RESOURCES
What are the definitions?
Land
Land: Natural resources that are used in the production of goods and services. This would include our forests, oil and gas, minerals, water and of course, the land we farm and build on. Land includes everything that Mother Nature provides for us.
RESOUCRES
What is capital?
Capital: These are goods used to make other goods. Capital includes all the manufactured aids to production such as tools, machinery, buildings, trucks etc. These are things that humans use to produce other things. Capital can be divided into:
i) Physical Capital: machines, tools, trucks, etc.
ii) Financial Capital: Money, bonds, stocks. These financial assets do not produce anything (in itself) although we would not have a productive and modern economy without it. However, when economists use the term capital, they mean physical capital.
What is labour?
Labour: Sweat equity and the intelligence that is needed to produce goods and services. The labour that it takes to teach a class, build a house, make a dress etc. Labour includes all mental and physical human resources, including intelligence, entrepreneurial capacity and management skills.
Goods are tangible items (e.g., cars, shoes, CD’s, TV’s etc) and services are
intangible (e.g., haircuts, education, house cleaning)
What are the 3 key economic ideas.
- People are rational.
- People respond to incentives.
- Optimal decisions are made at the margin
Explain “People are Rational”?
Rational: People make choices based on what they believe will make them happy. People do not deliberately do things to make themselves worse off.
Explain “People Respond to Incentives”
As costs and benefits change, so do the actions that people will take
Explain “Optimal Decisions Are Made at the Margin”
Most decisions ivolve doing a little more or a little less of something
Marginal cost and benefit (MC and MB): the additional cost or benefit associated with a small amount extra of some
action.
Comparing M C and M B is known as Marginal Analysis.
What is scarcity?
Scarcity means there are not enough goods and services to meet everyone’s needs and desires.
What are opportunity costs?
Opportunity costs are what is given up, including the best foregone alternative, when a choice is made.
Why do opportunity costs matter in decision-making?
They represent the value of the next best alternative, helping to weigh the benefits and trade-offs of a decision.
What is the difference between micro and macro economics?
Microeconomics: The study of how households and firms make decisions and how they interact in markets.
Macroeconomics: The study of economy-wide phenomena, including inflation, unemployment, and economic growth.
What are the 3 fundamental economic questions?
- What goods and services will be produced by society?
- How will the Goods and Services be Produced?
- Who will receive the Goods and Services Produced?
Define the following
Market
Centrally planned economies
Market economies
Mixed economies
Market: A group of buyers and sellers of a good or service
Centrally planned economies: government committees explicitly answer the three basic questions (What, how, who?).
Market economies: households and firms answer the three questions every time they make a choice.
Mixed economies: some central planning and some markets Canada is a mixed economy.
