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36 Cards in this Set
- Front
- Back
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Economics
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the study of how society uses scarce resources to meet unlimited wants and needs of humans
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Micro economics
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study of individual parts of the economy
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Macro economics
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study of aggregates (sum of individual parts)
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Opportunity cost
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what you give up because of your decision
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Trade offs
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All of your options
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Scarcity leads to...
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a quandary of choice
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4 steps of an Economic Model
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1. Vision
2. Analysis 3. Assumptions 4. Develop the model |
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Strong assumptions
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unrealistic, broad
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weak assumptions
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more realistic
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Weaker assumptions make...
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a stronger theory, or stronger foundations
(and vice versa) |
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Ceteris Paribus
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Other things equal
holding everything else constant |
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Utility
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satisfaction
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Consume
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derive utility/ get satisfaction
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Good
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tangible item
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Service
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work/task performed
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Law of Diminishing Marginal Utility
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utility we gain from consumption decreases with each successive unit consumed
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Marginal utility
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additional satisfaction from consumption
= change in TU / change in T |
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Maximizing utility WITHOUT scarcity
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without scarcity, consume until marginal utility = 0 and all resources (budget) are used
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Bliss point
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MU1= MU2
keep consuming until you reach Zero satisfaction this can only happen without scarcity |
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Endowments
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natural and human resources from which good and services are produced
Endowments make more efficient: human endowments like exercise and training FINITE |
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Factors of production
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-natural resources
- labor - capital (Financial, Physical, Human endowments) - entrepreneurship (puts together factors of production and starts producing) |
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Allocate
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deciding how to use factors of production
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Labor Intensive Technique
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rely on people doing work
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Capital Intensive Technique
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rely on machines
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Law of Diminishing Additional Marginal Productivty
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marginal productivity can increase, but will eventually decrease
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Marginal product
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additional product that 1 more worker adds
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Why does marginal product decrease over time?
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scarcity of resources (space, capital, land) and distraction
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Intertemporal decisions
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decisions made today affect us over time
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High discount rate
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need utility TODAY!!
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Low discount rate
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willing to give up today to get something better later
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Uncertainty...
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does not affect our decision making
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Risk...
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affects decision making
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Credit Risk
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borrowers may not pay back $ ever or just pay back really late
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Liquidity Risk
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can't turn back into cash quickly enough
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Inflation Rate risk
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inflation rates erode value of assets
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Time risk
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may have to pass up better opportunities bc of time
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