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27 Cards in this Set
- Front
- Back
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Economics
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The study of how people make choices when faced with scarcity
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scarcity
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When wants exceed resources when price is zero
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voting with dollars
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In our free market economy we let price act as the rationing device. The people who place the highest value on the good will be the most willing to pay.
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Diamond-water paradox
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Diamonds are very scarce; water is very plentiful.
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opportunity cost
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the next best sacraficed opportunity
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Revenue
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Price times quantity
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Microeconomics
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small individual parts of the economy
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Macroeconomics
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economy-wide questions
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Three basic micro questions
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What and how much to produce
How to produce For whom do we produce |
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capital
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Any physical resource used to produce other goods and services
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profit
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Signal that firms are "doing good"
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bankruptcy
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Signal that firm is in the wrong market
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Free Market System
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Goods and services go to those with the highest willingness to pay. We make the implicit assumption that willingness to pay equals marginal benefit.
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Basic premise of economics
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people are rational
marginal benefit>marginal cost |
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positive statement
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a "what is" statement
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normative statement
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a "what ought to be" statement
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economic model
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a description of some aspect of the economic world that includes only those features of the world that are needed for the purpose at hand
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economic theory
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a generalization that summarizes what we understand about thte economic choices that people make and the economic performance of industries and nations based on models that have repeatedely passed the test of corresponding well with real-world data.
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ceteris paribus
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a latin term that means "other things being equal" used so that one factor is changed at a time.
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natural experiment
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A situation that occurs in the ordinary course of economic life
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statistical investigations
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looks for coorelations
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Post Hoc Fallacy
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a latin phrase meaning "after this, therefore because of this" The second event causes the first event.
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sunk cost
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a previously incurred and irreversible cost
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Why some decisions may appear irrational
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-We all have different expected costs and benefits
-Imperfect information |
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types of models
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-tabular
-verbal -graphical -mathematical |
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Goal of model
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-not realism
-a lot of simplifying assumptions make good predictions to reduce uncertainty |
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largest items we spend our income on
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-medical care
-housing -transportation -food -recreation |
