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36 Cards in this Set

  • Front
  • Back
Identify many of the consequences of scarcity
1)
Explain how changes in opportunity cost affect behavior
2)
Explain what it means to think like an economist
a. scarcity and its effects
b. opportunity costs
c. what would have been
e. costs and benefits
f. decisions made at the margin
g. unintended effects
Explain how changes in opportunity cost affect behavior
2)
Discuss how theory is used in economics
4)
Explain how and why economists use the "ceteris paribus" condition.
5)
Identify the components of scientific thinking
6)
Steate the difference btw microeconomics and macroeconomics and between postive and normative economics
7)
Scarcity
The condition in which our wantes are greater than the limited resources available to satisfy those wants
wants infinite
resources finite
Economics
THe science of scarcity: The science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants
Economic Analysis
The process of applying economic tools and the economic way of thinkg to real-world problems
Economic way of thinking
refers to the way economics view, interpret and analyze the world
Utlitiy
The satisfaction one receives from a good
Good
Anthing from which individuals receive utility or satisfaction
Disutility
The dissatisfaction one receives from a bad
Bad
Antying from which individuals receive disutility or dissatisfaction
Land
All natural resources wuch as minerals, forests, water, and unimproved land
Labor
The physical and mental talents people contribute to the production process
Capital
Produced goods that can be used as imputs for further production, such as factories, machinary, tools, computers, and buildings
Entrepreneurship
The particular talent that some people have for oganizing the resources of land, labor, and capital to produce goods, seek new business opportunities, and develop new ways of doing things
Rationing Device
A means for deciding who gets what of available resourves and goods
Competition
Competition exists because of scarcity
whatever the rationing device, people will compete for it.
Opportunity Cost
The most highly valued opportunity or alternative forfeited when a choice is made.

THe higher the opportunity cost of doing something, the less likely it will be done.
Scarcity is the condition in which wants are greater than the limited resources available
wants: in scarcity are for goods
we get utility from goods
goods are produced with resources
B/c Scarcity rationing device is needed
whatever the rationing device; peopel will compete for it
B/c scarcity people must make choices
Choices are made- opportunity costs are incurred
Changes in O.C. affect behavior
Decisions at the margin
Decision making characterized by weighing additional (marginal) benefits of a change against the additional (marginal) costs of a change with respect to current conditions
THeory
refer to ideas that are unrealistic

An abstract representation of the real world designed with the intent to better understand that world.
Abstract
The process ( used in building a theory) of focusing on a limited number of variables to explain or predict an event.
Theory (explanation 2)
A theory emphasizes only those variables that the theorist believes are the main or critical variables that explain an activity or event
Building and testing a theory
1) Decide on what it is you want to explain or predict
2) Identify the variables that you believe are important to what you want to explain or predict
3) State the assumptions of the theory
4) STate of Hypothesis
5) Test the theory by comparing its predictions against real world
6) If the evidence supports the theory, then no further actions is necessary, although it is a good idea to a continue to examine the theory closely
7. If the evidence rejects the theory, then either formuate a new theory or amend teh old theory in terms of its variables, assumptions,a dn hypothesis
Fallacy of Composition
The erroneous view that what is good or true for the individual is necessarily good or ture for the group

In fact what is good for the individual may be for the group, but not necessarily
Ceteris Paribus
All other things held constant or nothing else changes
Importance of this assumption
with it we can clearly designate what we believe is the correct reliationship between two variables
Postive Economics
The study of "what is" in economic matters
Normative Economics
The study of "what sh ould be" in economic matters
Mircoeconomics
THe branch of economics that deals with human behavior and choices as they relate to relatively small units--an individual, a firm, an industry, a single markget
Marcroeconomics
The branch of economics that deals with human behavior and choices as they relate to highly aggregate markets (such as the goods adn services market) or the entire economy.