Chapter 1: The Five Foundations of Economics – Flashcards

question
Is a social science that studies the choices individuals, business, government, and entire societies make. Ex: Buying concert tickets or importing cars.
answer
Economics
question
The limited nature of society's resources. Economics discusses all about the allocation of resources.
answer
Scarcity
question
Deals with individuals; individual's demand, tax
answer
Microeconomics
question
Deals with the nation; unemployment, GDP
answer
Macroeconomics
question
1)What: quantities of corn, home, hospital 2)How: should we trade or invest? [Resources: Land, labor, capital - the "impossible trinity"] 3)For whom: individuals, business, entire society
answer
Three Invaluable questions in economics:
question
1)Incentives 2)Trade-offs 3)Opportunity Cost 4)Marginal Thinking 5)Trade Creates Value
answer
5 Foundations of Economics
question
People always respond to incentives. Positive incentives: tax refund, pay increase. Negative incentives: jails, tickets, getting fired. Direct or indirect.
answer
Foundation 1: Incentives
question
With scarcity, decisions incur costs
answer
Foundation 2: Trade-offs
question
Second best alternative - true cost of everything is opportunity cost
answer
Foundation 3: Opportunity Cost
question
Evaluate whether the benefit of one more of something is greater than the cost or not. Marginal benefit vs. Marginal Cost - MOST important
answer
Foundation 4: Marginal Thinking
question
Voluntary exchange of goods and services between two or more parties - trade ALWAYS creates value. With trade: you will be producing the product that you are good at. Without trade: you will have to produce everything.
answer
Foundation 5: Trade Creates Value
1 of

Unlock all answers in this set

Unlock answers
question
Is a social science that studies the choices individuals, business, government, and entire societies make. Ex: Buying concert tickets or importing cars.
answer
Economics
question
The limited nature of society's resources. Economics discusses all about the allocation of resources.
answer
Scarcity
question
Deals with individuals; individual's demand, tax
answer
Microeconomics
question
Deals with the nation; unemployment, GDP
answer
Macroeconomics
question
1)What: quantities of corn, home, hospital 2)How: should we trade or invest? [Resources: Land, labor, capital - the "impossible trinity"] 3)For whom: individuals, business, entire society
answer
Three Invaluable questions in economics:
question
1)Incentives 2)Trade-offs 3)Opportunity Cost 4)Marginal Thinking 5)Trade Creates Value
answer
5 Foundations of Economics
question
People always respond to incentives. Positive incentives: tax refund, pay increase. Negative incentives: jails, tickets, getting fired. Direct or indirect.
answer
Foundation 1: Incentives
question
With scarcity, decisions incur costs
answer
Foundation 2: Trade-offs
question
Second best alternative - true cost of everything is opportunity cost
answer
Foundation 3: Opportunity Cost
question
Evaluate whether the benefit of one more of something is greater than the cost or not. Marginal benefit vs. Marginal Cost - MOST important
answer
Foundation 4: Marginal Thinking
question
Voluntary exchange of goods and services between two or more parties - trade ALWAYS creates value. With trade: you will be producing the product that you are good at. Without trade: you will have to produce everything.
answer
Foundation 5: Trade Creates Value