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43 Cards in this Set
- Front
- Back
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What are the 3 questions for every economy?
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What do we produce?
How do we produce? Who produces it? |
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What is socialism?
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an economic system based on individuals good will toward others, not their own self-interest
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What is feudalism?
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an economic system in which traditions rule
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What is mercantilism?
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an economic system in which government determines the what, how and for whom decisions by doling out the rights to undertake certain economic decisions
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What is capitalism?
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an economic system based on private property and the market in which, in principle, individuals decide how, what and for whom to produce
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What would happen in a Marxsist economy vs. Communist economy if you had 2 cows?
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Marxsist= Your neighbors help take care of the cows and you share milk
Communist= The government takes away your cows and denies they ever existed |
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What is a price?
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A price is a ratio at which two goods may be exchanged in a market
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What is a theory?
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A theory is capable of being tested through experimentation or otherwise falsified through empirical observation
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What are 2 caveats of a theory?
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It does not imply its converse
(converse means something opposite or contrary) Scientists don’t prove anything. At best, we fail to refute |
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What is a regulation?
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It is designed to alter the behavior of individuals. It does so by using some appropriate set of incentives
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What is scarcity?
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Not having enough of the items we find desirable to satisfy our wants
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What is opportunity cost?
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The opportunity cost of any decision is the value of the next-best alternative forgone
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When is a good free?
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Never
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What is a normative statement?
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Normative statements are those suggestive of what ought or ought not to be
Examples: -The level of duty on petrol is too unfair and unfairly penalizes motorists. -The government is right to introduce a ban on smoking in public places. |
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What is a positive statement?
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statements that can be classified as either true or false
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What is economic policy?
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An action taken (e.g., by a government, governmental agency, boss, firm, professor) to influence the incentives associated with particular behaviours
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What is an economic institution?
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a physical or mental structure that influences economic decisions
NOT A PLACE LIKE GOV'T OR A FIRM. It is like the institution of marriage, you follow pre-determined pattern |
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What are the 5 dimensions of economic learning
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1 Economic reasoning
2 Economic terminology 3 Economic insights 4 Economic institutions 5 Economic policy |
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Who and why drives across town to CostCo for $.15 on gas? A mother of 4 with a minivan. A mother of 1 with the same minivan?
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A mother of 1 because the mother of 4 will not have the TIME and Patience to exchange for the savings.
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EDIT THIS CARD!!!!!!!!!!!!!!
What is consumer theory? |
Characterizes consumer choices in a systematic way
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What are constraints that we face on our consumption?
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Obstacles that are in the way of people making purchases (eg. Income, Price of Good, Legality, Cost of Maintenance, Health, Finite Existance, act.)
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What is a surplus?
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Excess of the quantity supplied over quantity demanded
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What is a shortage?
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Excess of the quantity demanded over quantity supplied over
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How are quantity supplied and demanded determined in a free market?
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Interaction of the supply curve and the demand curve.
When demand is greater than supply= Prices rise When supply is greater than demand= Prices fall |
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What is the role of social sciences?
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Each are concerned with explaining some aspect of human behavior.
They differ in the questions they pose and their frameworks for analysis. |
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How do we measure value?
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We measure value by what one is willing to give up in order to obtain something.
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What is “intrinsic value?”
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We will maintain that an object cannot have value beyond what people are willing to pay for the right to control the object.
Examples: Our constitutional rights are an intrinsic aspect of each American's heritage. |
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What is total Total Value?
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the maximum amount of money she is willing to pay in order to acquire/give up the good.
E.g., The highest price you would pay for a 12-track album. E.g., The amount of money for which you would be willing to part with a 12-track album. |
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What is Marginal Value?
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the maximum amount she is willing to pay to acquire/give up one more unit of the good.
E.g., The highest price you would pay for one track. E.g., The amount of money for which you would be willing to part with one track. |
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If you run a marathon, do you value a first glass of water equally to the second? Explain.
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The law of diminishing marginal value.
For all individuals and all goods, the marginal value of goods decreases as more of that good is consumed, holding other things constant. |
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How many items should we purchase?
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That is, the consumer should continue to purchase additional goods as long as Marginal Value is greater than Price
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What is the law of demand?
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As the price of an item rises, the quantity demanded of the item generally falls.
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What is the demand curve a representation of?
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a graphical depiction of the demand schedule.
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What must assume remains constant in a demand curve?
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Various factors that affect demand, such as:
E.g., Income (or wealth), tastes, age, quality, advertising, season, the legality of consuming the good, the cost of maintaining the good in working order, our health, or our finite existence, the price of other goods. |
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What is the optimal purchase rule?
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Consumers will continue to purchase additional goods as long as MV > Price, or, more generally, until MV = Price
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Do people follow the optimal purchase rule?
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What matters is not that you do, but that you behave as though you do
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What is demand?
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A schedule of quantities of a good that will be bought per unit of time at various prices, other things constant.
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What is quantity demanded?
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A specific quantity that will be demanded per unit of time at a specific price, other things constant.
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What happens when demand is increased?
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At every price, the individual is now willing and able to purchase more units than before.
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Why are diamonds more expensive than water?
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The market prices of goods reflect consumers’ marginal values of these goods and not their total values.
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What is the logic behind "buy one, get one free?"
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MV1 =$4andMV2 =$2 and MV3 =$1. If the posted price of the item is $5, how many units will the individual buy?
Zero. Buy one at $5, get a second free?” The individual makes the exchange, yielding total revenues to the firm of $5. Sell 1 unit at $4 and make 4 Sell 2 units at $5 and make 2.5 (.5 more than actually selling 2 units at $2 due to marginal value) |
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Can a theory be proven?
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No, at best we fail to refute
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What is an equilibrium in the demand/supply relationship?
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market supply and demand balance each other and, as a result, prices become stable.
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