Naked Economics – Chapter 1 – Flashcards

agreements in which competitors divide markets among themselves. Firms will specify a location and customers they want to sell to. ex. Coca cola gained a huge market in East Germany by passing free coke's through the Berlin wall. Thus establishing a market in that location.

a metaphor to describe the self-regulating behavior of the marketplace. idea put forth by Adam Smith; he said the 'hand' would control the market without government interference; the 'hand' is guided by the three laws of economics: (related to Laissez-faire economics)

Representation of sets of goods that bring some satisfaction to people who are in possession.

The opportunity cost of any action is simply the second best alternative to that action - or put more simply, "What you would have done if you didn't make the choice that you did".

The amount of goods or service that consumers are willing and able to buy at a certain price

economic side effects or by-products that affect an uninvolved third party; can be negative or positive

a systematic process for calculating and comparing benefits and costs of a project, decision or government policy

the reason for a business's existence is to turn a profit. The profit motive functions on the theory that individuals tend to pursue what is in their own best interests. Accordingly, businesses seek to benefit themselves and/or their shareholders by maximizing profits.

the skills and knowledge gained by a worker through education and experience

Conditions that keep new businesses either from entering an industry or succeeding in that industry.

The price at which buyers and sellers agree to trade. The price is determined by the supply and demand of a product

are often characterized as belonging to one of three categories: cost-based, demand-based, or competition-based pricing. In practice, most pricing decisions integrate elements for each of these categories. Prices typically reflect marketers' consideration of product-related costs, consumer preferences, and competitors' prices.

selling the same products to different buyers at different prices

make lives better: the only way firms can make profits is by delivering goods that we want to buy. Market is amoral: markets reward scarcity, which has no relation to value. (diamonds are worthless if you look at how useful they actually are whereas water is the most expensive thing that your body needs. but diamonds are costly only because they are rare.) (also why criminals are very innovative, to make money) self-correcting: when gas approached $4 a gallon, people corrected their situation by buying smaller cars and riding motorcycles. fixed prices => competition on other fronts: (when airline tickets were a set price by the government, airlines competed by making flights comfortable and fancy. now they are completely based on profit) trade makes everyone better off: Both firms and customers are actin in their own self interest. (ex. Workers take jobs in sweatshops because it is the best employment option they have)

Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology.