what is economics? Flashcards
What is Economics?
Economics is a social science that studies how societies allocate scarce resources to meet unlimited wants and needs.
What are goods?
Goods are tangible products that are produced and have a physical form.
What are services?
Services are intangible products that are produced and have no physical form.
What role do firms play in the economy?
Firms provide goods and services, employ labor, and pay wages to households.
What is the function of households in the economy?
Households provide labor to firms and consume the goods and services produced by firms.
What is the role of government in the economy?
Government collects taxes from firms and households and redistributes wealth to maximize societal welfare.
What is the economic problem?
The economic problem is that there are unlimited wants and needs but limited resources.
What are wants and needs?
Wants are things we need to survive, while needs are things we like to consume.
What is the price mechanism?
The price mechanism is used to allocate scarce resources efficiently in most societies.
What are the three functions of price?
- Signalling function
- Incentive function
- Rationing function
What does the signalling function of price indicate?
Changes in price give households and firms important signals about consumption and production.
How does the incentive function of price work?
A high price signals to firms that there is high demand and opportunity for profits.
What does the rationing function of price do?
The rationing function indicates what should be rationed based on scarcity.
What are free goods?
Free goods are resources that seem abundant and cost nothing to use.
What is an example of a free good?
Examples include air, oceans, and rivers.
What defines a science?
A science is the development and use of a systematic methodology based on evidence.
Why is economics considered a social science?
Economics attempts to establish rules and norms and explain their causes and effects.
Is social science as accurate as traditional science?
False. Social sciences find it more difficult to establish cause and effect accurately.
How do traditional sciences control variables?
They set up experiments in laboratories to create controlled environments.
Why is it difficult for social sciences to control variables?
Social interactions cannot easily be replicated in laboratories, leading to many uncontrolled variables.
How do economists control variables?
Economists make assumptions to simplify and control variables.
Are assumptions in economics as reliable as laboratory experiments?
No. Assumptions can be wrong and overly simplistic.
Does the difficulty in establishing cause and effect make economics pointless?
No. Economists have identified meaningful cause and effect, leading to improved living standards.
What has contributed to the wealth differences among countries?
Better economic policies have led to wealth differences among countries.
