Studied by 54 peopleFour characteristics of science
Fact
Theory
Narrative 4 Metaphor
3 fundamental econ questions
what to produce and in what quantities
how to produce
for whom to produce
what is economics
the science of choice
three economic models/ways to answer the fundamental Qs
traditional
central planning/socialism
market/free enterprise/capitalism/price system
four preconditions for markets
working for wages (must be well-established and culturally acceptable)
markets must exist (places to voluntarily exchange goods)
people must be able to own private property
must permit the existence of economic "winners and losers"
three elements of private property rights
right to consume what is yours
right to exclude others from consuming what is yours
right to transfer property rights to someone else
economic coordination
how the three fundamental Qs are answered
how do economies deal with scarcity
coercion
macroeconomics
the study of the economy as a whole
microeconomics
the study of how individual choice is influenced by economic forces
sunk cost
costs already incurred that cannot be recovered
marginal cost
additional cost beyond what's already incurred
marginal benefit
additional benefit beyond what's already derived
economic decision rule
if marginal benefit > marginal cost, do it if marginal benefit < marginal cost, don't do it
opportunity cost
the value of the next-best alternative
implicit cost
costs of a decision not part of normal accounting
illusionary sunk costs
costs part of normal accounting that shouldn't be
economic forces
reactions to scarcity/rationing mechanisms
market force
rationing using prices/supply and demand
invisible hand
the price mechanism
what else shapes economic reality other than economic forces?
social and political forces
economic model
a framework that puts a theory in context
economic principle
commonly held economic insight
experimental economics
using controlled experiments (including lab, field, or natural)
economic theorems
logically-true propositions which when combined with real world knowledge and value judgements creates policy precepts
policy precepts
the conclusion that a certain course of action is preferable
efficiency
achieving a goal as cheaply as possible
invisible hand theorem
the price mechanism tends to allocate resources efficiently
positive economics
the study of what is
normative economics
the study of what should be
the art of economics
the study of how to make the economy the way it should be through policy
what causes a straight PPC?
the tradeoff between the cost of one good in terms of another is constant
increasing marginal opportunity cost
to get more of something, one generally has to give up ever-increasing quantities of something else
why are PPCs often bowed-out?
increasing marginal opportunity cost
comparative advantage
a quality of resources that makes them more suited for the production of one good over another
what is the reason for increasing marginal opportunity cost?
comparative advantage
what are two reasons why markets lead to economic growth?
markets allow specialization and encourage trade
competition sparks innovation, productivity, and learning
what is the principle that underlies laissez-faire policy?
voluntary trade is a win-win
globalization
increasing integration of economies, cultures, and institutions across the world
the Law of One Price
wages in one country will not significantly differ from the wages of equal workers in another institutionally similar country
what are the 3 general economic sectors?
households
businesses
government
entrepreneurship
the ability to organize and innovate to start a business
sole proprietorship
businesses directly owned and controlled by one owner, has limited ability for funding and unlimited personal liability
partnership
businesses owned by a small group of owners with shared work and risks, has limited ability for funding and unlimited personal liability
corporation
businesses that are legally owned by stockholders who are not liable for actions of the corporate "person"
which general economic sector is the most powerful and why?
households—they ultimately control the government with votes and businesses with dollar votes and labor
what are government's two roles in the economy
actor
referee
6 roles of government
providing a stable set of institutions and rules
promoting effective and workable competition
correcting for externalities
ensuring economic stability and growth
providing public goods
adjusting for undesirable market results
externality
the effect of a decision on a third party not taken into account by the decision maker
macroeconomic externality
effect of an individual decision that impacts unemployment, inflation, or economic growth
demerit goods and activities
things that the government decides are undesirable
merit goods and activities
things that the government decides are desirable
market failure
when the market doesn't lead to the desired result
government failure
when government intervention makes things worse
global corporation
when both production and sales happen in multiple countries
accounting cost
what you write in a checkbook
economic cost
includes opportunity cost
what were the two options for incentivizing parents to pick up their kids on time in econ minute #1
lump-sum fine
time-function penalty
shift factors of demand
taste
income
expectations
the price of other goods
taxes and subsidies
number of consumers
law of demand
if prices go down, demand increases
rule of supply
generally at higher prices, the seller will offer higher quantities
supply shift factors
changes in technology
change in input prices
expectations
taxes and subsidies
equilibrium
the price at which people will continue trading; the market is "at rest" or "has cleared"; when opposing dynamic forces cancel each other out
tatonnement
the movement towards equilibrium
english auction
ascending price, last bidder wins
dutch auction
descending price, first bidder wins
first price auction
highest bidder wins
second price auction
highest bidder wins, buy pays the second highest price
how to determine the market demand curve
horizontal sum of individual demand curves
equilibrium price
the price toward which the invisible hand drives the market
equilibrium quantity
amount bought and sold at equilibrium price
the fallacy of composition
the false assumption that what is true for a part will also be true for a whole
what affects tastes
advertising
science
religion
government
celebrities
arbitrageur
people who buy law, stockpile, and sell higher; they smooth out the trend of prices over time
principle of rational self interest
we would rather have more than less; we would rather things cost less than more
alfred marshall's metaphor for how price and demand work to affect price
scissors
rational self interest
the behavior of people to make decisions based on cost benefit analysis
network externalities
greater use of a product increases the benefit of that product to everyone else
2 effects of a price ceiling
shortage
people wait in line
2 unintended consequences of price controls
discrimination; allocation based on seller's preferences
black markets
black market
when people sell illegally above the price ceiling
why do disasters have no economic blessing?
repairing the damage just takes the PPC back to where it was before
three methods of non-market allocation
lottery
producer preferences
black markets
consequence of a price floor
surplus
result of a concurrent supply and demand shift
you can only know either price or quantity, the other shift is indeterminate
centeris paribus
all other things being equal
voltaire's observation at the london stock exchange
markets cause people to set aside religious differences
ways to deal with surplus
store
destroy
allocate elsewhere
increase demand
decrease supply
important example of a floor price
minimum wage
what is the economic term for a labor surplus
unemployment
6 types of elasticity
price elasticity of demand
supply elasticity
income elasticity
market share elasticity
advertising elasticity
cross price elasticity
who invented price elasticity of demand
alfred marshall
price ceiling
a government-imposed limited on how high a price can be charged
rent control
a price ceiling on rents, set by government
price floor
government imposed limited on how low a price can be charged
minimum wage law
laws specifying the lowest wage a firm can legally pay an employee
excise tax
tax that is levied on a specific good
tariff
an excise tax on an imported good
third-party-payer market
the person who receives the good differs from the person paying for the good (health insurance)
result of 3rd party payer markets
equilibrium quantity and total spending are much higher
Note
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