eco 201 uk
Terms
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- economics
- the study of the choices individuals make in a society given the presence of scarcity; the study of how people coordinate their wants
- types of resources
- land (water, air, oil, land, nr), nonhuman animal resources (agriculture markets and livestock), labor (physical/mental human capital), capital (man-made resources), technology, entrepreneurial ability (combining 1-5 for production)
- the economy
- the institutional structure through which individuals in a society coordinate their diverse wants.
- nine guideposts to economic thinking
- 1) use of scarce resources is costly, so trade-offs must be made. 2)individuals choose purposefully-they try to get the most from their limited resources. 3)incentives matter-choice is influenced in a predictable way by changes in incentives. 4)individuals make decisions at the margin. 5) although information can help us make better choices, its acquisition is costly. 6)beware of the secondary effects. 7)the value of a good or service is subjective. 8)the test of a theory is its ability to predict. 9)forces influence economics outcomes.
- economizing
- choosing the result that offers the greatest benefit at the least possible cost
- scarcity
- this occurs when there are not as many resources as people desire; it means having to make choices, leading to trade-offs; it necessitates rationing; leads to competitive behavio
- goods and services
- they are produced when all 6 types of resources are used efficiently
- the three economic questions
- 1) what, and how much, to produce. 2) how to produce it. 3) for whom to produce it. these are issues of ALLOCATION
- ecnomic theory
- a set of principles assembled in a manner that makes clear what economists look for
- sunk costs
- the historical costs of past decisions that CANNOT be reversed
- marginal analysis
- the analysis of the benefits and costs of the marginal (additional) unit of a good; used to assist people in allocating their scarce resources to maximize the benefit of the output produced; simply getting the most value for the resources used.
- marginal benefit
- the maximum price a consumer will be willing to pay for an additional unit of a product
- marginal cost
- the change in total cost required to produce an additional unit of output
- the economic decision rule
-
if the marginal benefit of an action>marginal cost, DO IT.
if the marginal benefit
- opportunity costs
- a choice to do one thing is also the choice to not do something else; subjective because they depend on how the decision maker values his or her options (matter of opinion)
- invisible hand
- market prices coordinate the actions of self-interested individuals and direct them towards activities that promote the general welfare
- invisible handshake
- social and historical forces such as cultural norms
- invisible foot
- political and legal forces such as selling alcohol to underage drinkers, selling marijuana, selling babies, and selling body parts
- economic models
- the use of simple abstract models to study large, more complex concepts; models for production; used for policy analysis
- policy analysis
- the analyzing of policies
- microeconomics
- focuses on the decision making of consumers, producers, and resource suppliers operating in a narrowly defined market
- macroeconomics
- focuses on how human behavior affects outcome in highly aggregated markets, such as the markets for labor or consumer products
- normative economics
- a statement that is opinion and cannot be tested;
- positive economics
- a statement that can be tested, proven, or disproven;
- the art of economics
- positive economics allows us to study the facts about how the economy works; normative economics is used to identify problems and prescribe solutions
- ceteris paribus
- "other things constant"; can lead one to draw the wrong conclusions
- association is not causation
- just because something is associated with something does not mean it is caused by it
- fallacy of composition
- the idea that people will argue that what is true for one person is also true for everyone else