Chapter One Cards – Flashcards
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Individual choice, choice interaction and economy-wide interaction.
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Name the three principles of economics.
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Individual choice; a set of principles for understanding the economics of how individuals make choices. Choice interaction; a set of principles for understanding how individual choices interact. Economy-wide interaction; a set of principles for understanding economy-wide interactions.
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What are the three principles.
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Social science that studies how individuals, firms, governments and other organizations within our society makes choices about the scarce resources in our society. (The study of how the productive, consumptive and distributive aspects of life are organized)
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Define economics.
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System for coordinating society's productive activities.
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Define economy.
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An economy in which decisions about production and consumption are made by individual producers and consumers.
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Define market economy.
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Branch of economics concerned with how people make decisions and how these decisions interact. (consumption of given goods, education levels, firm size, market structure, even family decisions)
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Define microeconomics
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The branch of economics concerned with the overall economy. (concern is with variables such as inflation, unemployment, output, trade, the overall level of wages, etc.)
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Define macreconomics
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Refers to the idea that individuals pursuit of self-interest can lead to good results for society as a whole.
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Define the invisible hand
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When individual pursuits of self-interest lead to bad results for society
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Define market failure
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Growing ability of the economy to produce goods and services
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Define Economic growth
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Is the decision by an individual of what to do, which necessarily involves a decision of what not to do
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Define individual choice
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Resources are scarce, the real cost of something is what you must give up to get it, "how much?" is a decision at the margin, people take advantage of opportunities to make themselves better off.
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What are the basic principles behind individual choices
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Is anything that can be used to produce something else. (ex, land, labor (time of workers), capital (machines).
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Define resource
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The quantity available is not large enough to satisfy all productive uses (ex, petroleum, lumber, intelligence)
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Explain what it "resources are scarce" means
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It is the real cost of an item, what you must give up in order to get it, also defined as the value of the next best alternative, is about what you have to forgo to obtain your choice.
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Define opportunity cost
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Its the cost of tuition and housing plus the forgone salary you could have earned.
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Explain why attending college has a high opportunity cost
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About 6%, by 2005 that number had reached 60%
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In the 1900 what percent of married women worked for pay outside the home?
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This change is in part due to changing attitudes and the growing availability of home appliances, especially washing machines.
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Why was there a major rise in married women working for pay outside the home from 1900-2005?
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It was something women typically did only in the face of dire financial necessity.
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Why in the pre-appliance days, was the opportunity cost of working outside the home high?
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You make a trade-off when you compare the costs with the benefits of doing something.
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Explain "trade-off"
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decisions about whether to do a bit more or a bit less of an activity. (ex. not "either-or" but "how much" to study for an exam)
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Define marginal decisions
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comparing the costs and benefits of doing a little bit more of an activity. (ex, studying one more hour) (the study of these decisions are known as marginal analysis)
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What does "making trad-offs at the margin" mean?
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Anything that offers rewards to people who change their behavior.
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Define the term incentives
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My choices affect your choices and vice versa-is a feature of most economic situations.
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What does interaction of choices mean?
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There are gains from trade, markets move toward equilibrium, resources should be used as efficiently as possible to achieve society's goals, markets usually lead to efficiency and when markets done achieve efficiency, government intervention can improve society's welfare.
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What are the basic principles behind interaction of individual choices
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Individuals provide goods and services to others and receive goods and services in return
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Define trade
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People can get more of what they want through trade than they could if they tried to be self-sufficient
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What are the gains from trade?
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When each person specializes in the task that he or she is good at performing. (The economy as a whole can produce more when each person specializes in a task and trades with others)
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Explain specialization
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When no individual would be better off doing something different
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When is an economic situation in equilibrium?
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What happens when a new checkout line opens at a busy supermarket? everyone rushes to the new checkout line.
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Collaborate "Any time there is a change, the economy will move to a new equilibrium"
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If it makes some people better off without making other people worse off
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When is an economic choice efficient?
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That everyone get his or her fair share. Since people can disagree about what's fair, equity inst as well-defined a concept as efficiency.
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What does equity mean?
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Equity; making the life "fairer" for handicapped people. Efficiency; making sure that all opportunities by never letting parking spaces go unused.
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"Handicapped-designated parking spaces in a busy parking lot" explain the conflict regarding equity and efficiency
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It ensures that resources are usually put to good use. (opportunities to make people better off are not wasted)
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What does incentives built into a market economy ensure?
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The individual pursuit of self-interest found in markets makes society worse off A the market outcome is inefficient
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An exception to markets leading to efficiency is market failure. Explain.
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Public good provision (parks, important research, education, roads) - markets fail because of the 'free-rider' problem. Environmental degradation - markets fail because many resources in our natural environment are not valued. Environmental 'goods' or 'bads'. Equity - markets will ensure pay is consistent with markets - based characteristics (education, skill, initiative)
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When do markets fail?
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A.One persons spending is another persons income, B.Overall spending sometimes gets out of line with the economy's productive capacity, C. and governments policies can change spending.
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What are the three principles underlie economy-wide interactions?
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A. Economy is linked and changes in spending behaviors have repercussions throughout the economy. B. The amount of goods and services people want to buy sometimes does not match the amount of goods and services the economy can produce. C. Government uses three tools (government spending, taxes and quantity of money in circulation) that can have a large impact on the economy.
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Explain each three underlining economy-wide interactions.
