Economics

Front 1

9 principles of economics

Back 1

1. Trade benefits everyone, but it does not benefit everyone equally
2. People face trade-offs
3. The cost of something is what you give up to get it
4. People respond to incentives
5. Rational people think at the margin
6. Markets are a good way to organize trade
7. The governments can SOMETIMES improve market outcomes
8. A country's standard of living is determined by the (average) productivity of its workers

Front 2

define economics

Back 2

the study of how societies (and individuals) allocate scarce resources

Front 3

opposite of incentive

Back 3

disincentive

Front 4

thinking @ the margin

Back 4

weigh the cost and benefit at the margin

Front 5

marginal change

Back 5

incremental change to an existing plan of action

Front 6

market

Back 6

any place (physical or virtual) where buyers and sellers interact to exchange

Front 7

externality

Back 7

the unintended consequence of one person's actions upon an uninvolved bystander
-can be positive or negative
-begins with an initial transaction

Front 8

internalizing an externality

Back 8

forcing people who cause negative externalities to pay the price of their externalities or rewarding people who cause positive externalities
i.e. tax break for fixing up your house and raising property values
i.e. taxing people who buy dogs, whose poo we know your going to leave around

Front 9

market-based response

Back 9

- tax someone/ make someone pay for something to discourage the action- Pigovian Tax
- benefit people who do something good- carpool lane; carbon cap and trade system; tax break for college education

Front 10

command and control response

Back 10

making something illegal or requiring something

Front 11

monopoly

Back 11

complete or substantial control over supply of a particular good or service

Front 12

cartel

Back 12

a group of companies who agree to combine and create a monopoly

Front 13

collude

Back 13

the act of creating a cartel

Front 14

market failure

Back 14

a situation in which the government fails to efficiently allocate goods

Front 15

tragedy of the commons

Back 15

a situation in which lack of private property rights (or binding agreements) results in unsustainable use of resources
i.e. the over-fishing issue

Front 16

positive statement

Back 16

WHAT IS- a description of facts/ reality
i.e. the sky is blue

Front 17

normative statement

Back 17

statement about how things ought to be in response to a positive conclusion
i.e. Americans should do x,y, and z

Front 18

productivity

Back 18

the amount of value, in dollars, produced by one worker in one hour

Front 19

4 factors of productivity

Back 19

1. Natural Resources- water; oil
2. Physical Capital- tools (manmade objects); computers
3. Human Capital- sum total of all one’s skills; experiences; knowledge etc.
4. Technological knowledge- knowledge of systems; how to create Coca-Cola