Econ 101 - Mod 2/ch 1 (Bn)

Front 1

Microeconomics is the study of...

Back 1

How individual households and businesses make decisions regarding the allocation of scarce resources.

Front 2

In the factor market, who are the sellers and who are the buyers?

Back 2

Households are the sellers and firms are the buyers.

Front 3

What is a circular flow model?

Back 3

A visual model of how the economy is organized.

Front 4

The Big Tradeoff

Back 4

The tradeoff between equality and efficiency.

Front 5

Scarcity

Back 5

Our inability to satisfy all our wants and needs with limited resources.

Front 6

Economics

Back 6

A social science that studies the choices people and institutions make as they are faced with scarcity and the incentives that affect those choices.

Front 7

Explain “what” in the context of the choices society makes when faced with scarcity.

Back 7

Determines the quantity of goods and services society produces.

Front 8

Explain “how” in the context of choices society makes when faced with scarcity.

Back 8

How involves the choice of inputs to produce goods and services

Front 9

Explain “whom” in the context of choices society makes when faced with scarcity.

Back 9

Focuses on the mechanism of distribution, or how the income from goods and services is distributed throughout the economy - this determines who makes the profits.

Front 10

Inputs

Back 10

The resources that economists call factors of production.

Front 11

What are the “five core ideas” of the economists way of thinking?

Back 11

1. People make rational choices by comparing costs and benefits.

2. Opportunity cost is the cost of doing something for a specific purpose. It is measured by the benefit given up by not using it in their best alternative use.

3. A benefit is what you get from consuming something.

4. Rational choices are made on the margin.

5. People make choices in response to incentives.

Front 12

Normative statement

Back 12

What ought to be - Depends on someone’s opinion and can’t be tested.

Front 13

Positive statement

Back 13

What is - Represents a fact or observation (descriptive) and can be tested.

Front 14

Macroeconomics

Back 14

Addresses the issues of unemployment, inflation, business cycles, economic growth, and fiscal and monetary policy for and entire economy.

Front 15

Households

Back 15

Economic units that supply factors of production (such as labour) in exchange for payments (such as wages).

Front 16

Firms (Businesses)

Back 16

Economic units that hire factors of production and organize them to produce and sell goods and services.

Front 17

Entrepreneurship

Back 17

The human resource that organizes labour, land, and capital.

Front 18

1. Land earns...

2. Labour earns...

3. Capital earns...

4. Entrepreneurship earns...

Back 18

1. Rent

2. Wages

3. Interest

4. Profit

Front 19

Market

Back 19

Any arrangement that brings buyers and sellers together with the intention to make an exchange.

Front 20

What are the 4 economic agents in the circular flow model?

Back 20

Households, Firms, Market for goods and services, Market for factors of production.

Front 21

Incentive

Back 21

A reward that encourages an action or a penalty that discourages one.

Example: prices

Front 22

Goods and services

Back 22

The objects that people value and produce to satisfy wants.

Front 23

Factors of production

Back 23

The resources used to produce goods and services. (Land, labour, capital, entrepreneurship)

Front 24

What are the two big questions that summarize the scope of economics?

Back 24

1. How do choices end up determining what, how, and for whim goods and services are produced?

2. Do choices made in the pursuit of self-interest also promote the social interest?

Front 25

Land

Back 25

In economics, land is what in everyday language we call natural resources.

Front 26

Labour

Back 26

The work time and work effort that people devote to producing goods and services.

Front 27

Capital

Back 27

The tools, instruments, machines, buildings and other constructions that businesses use to produce goods and services.

Front 28

Human Capital

Back 28

The knowledge and skills that people obtain from education, on-the-job training, and work experience.

Front 29

Preferences

Back 29

What a person likes and dislikes and the intensity of those feelings.

Front 30

How do economists measure benefit?

Back 30

The most someone is willing to give up to get something.

Front 31

Opportunity Cost

Back 31

The highest valued alternative that must be given up to get it.

Front 32

Marginal Benefit

Back 32

The benefit that arises from an increase in activity.

Front 33

Marginal Cost

Back 33

The opportunity cost of an increase in activity.

Front 34

What is the central idea of economics?

Back 34

That we can predict the self interested choices that people make by looking at the incentive they face.

Front 35

Economic Model

Back 35

A description of some aspect of the economic world that includes only those features that are needed for the purpose at hand.

Front 36

What do economists mean when they use the word “efficient”?

Back 36

A situation that can’t be improved upon.

Front 37

Globalization

Back 37

The expansion of international trade, borrowing and lending, and investing.

Front 38

Market Capitalism

Back 38

An economic system in which individuals own land and capital and are free to buy and sell land, capital, and goods and service in markets.

Front 39

Centrally Planned Socialism

Back 39

An economic system in which the government owns all the land and capital, directs workers to jobs, and decides what, how, and for whom to produce.

Front 40

Mixed Economy

Back 40

Market capitalism with government regulation.

Front 41

What are the six key ideas that define the economic way of thinking?

Back 41

1. A choice is a tradeoff

2. People make rational choices by comparing benefits and costs

3. Benefit is what you gain from something.

4. Cost is what you must give up to get something.

5. Most choices are “how-much” choices made at the margin

6. Choices respond to incentives

Front 42

Tradeoff

Back 42

An exchange - giving up one thing to get something else.

Front 43

Rational Choice

Back 43

One that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice.

Front 44

Benefit

Back 44

The gain or pleasure it brings as determined by preferences.