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36 Cards in this Set
- Front
- Back
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Economics |
The study of choices people make to attain their goals, given their scarce resources |
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Scarcity |
A situation in which unlimited wants exceed the limited resources available to fulfill those wants |
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What do Economists study |
They study choices using economic models |
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Economic Model |
Simplified versions of reality used to analyze real-world economic applications |
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Bottom Line |
We don’t have enough, money, time, resources, etc. To do everything so we have to make choices |
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Three Key Economic Ideas |
People are rational People respond to incentives and optimal decisions are made at the margin |
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People are rational |
People make decisions on what they believe will make them happy Rational decision makers weight cost and Benifits |
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People respond to Incentives |
As costs and benefits change, so do the actions that people will take E.g. China’s child tax benefit |
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Optimal decisions are made at the margin |
Most decisions involve doing a little more or a little less of something, Marginal Cost and Marginal Benefit |
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Marginal Analysis |
Comparing Marginal cost and Marginal benefit |
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Opportunity cost |
The value of the best Alternative E.g. Studying more Chem than Econ |
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All Societies must ask these questions |
What foods and services which goods and services to produce? How will the Services be produced? Who will receive the goods and services? |
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Types of Economies |
Command Market Moxed Market |
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PPF |
Production Possibilities Frontier |
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Slope formula |
Slope = Change of Y Change of X |
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Opportunity Cost |
The highest valued alternative that must be given up to engage in an activity |
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Trade |
The act of exchanging one thing for another |
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Absolute advantage |
The ability to produce more of a good or service than others, using the same amount of resources |
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Comparative Advantage |
The ability to produce a good or service at a lower opportunity cost than others |
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What is the basis for trade |
Comparative Advantage |
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Households |
Provide the factors of production Receive payments for these factors by selling them to firms |
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Firms |
Supply goods and services to product markets |
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Circular flow diagrams |
Shows links between households and firms |
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The legal basis for a successful market |
They must remain separate for the protection of private property and the enforcement of contracts and privacy rights |
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Positive Analysis |
Analysis relying on facts or logic |
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Normative Analysis |
Analysis relying on value judgments |
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Ceteris Paribus |
The assumption that all variables are constant |
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Law of demand |
When the price falls quantity demanded will rise Implication: Demand curve slopes downward |
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Substitution effect |
The change in the quantity demanded due to a change in price We buy products to cost less |
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Income effect |
The change in quantity demanded due to the effect of a change in the goods price on consumers purchasing power |
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What factors influence market demand |
I come of consumers Prices of related goods Tastes Population and demographics Expected future prices |
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Normal good |
A good in which the demand increases as income rises and decreases as income falls |
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Inferior good |
A good for which the demand decreases as income rises and increases as income falls |
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Substitutes |
Goods and services that can be used for the same purpose |
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Complements |
Goods and services that are used together |
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Tatse |
If consumers tastes change they may buy more or less of a product |
