Fundamental Theories of Microeconomics

Flashcards covering the fundamental theories, key economists, and core principles of microeconomics including Malthusian population theory, Ricardian laws, and Smith's laissez-faire.

Theories

Well-thought bodies of knowledge or mind frames meant to explain scientific postulates and/or phenomenal realities.

Thomas Malthus (1766-1834)

British economist and author of "An Essay on the Principle of Population" ($1798$) who claimed population tends to increase faster than the food supply.

Malthusian theory

Explains that population grows geometrically while food production is responded arithmetically.

David Ricardo

Economist known for the Theory of Land ($1817$) and the Law of Diminishing Marginal Return.

Ricardo’s Law of Diminishing Marginal Return

Explains that as population grows, productive resources like land utilization and industrial production tend to deteriorate.

Ricardo’s Law of Diminishing Utility

Theory stating that physical things deteriorate over time and frequently consumed/utilized items tend to become dysfunctional in usefulness.

Francois Quesnay (1694-1774)

French economist and principal founder of the Physiocratic school who claimed only agriculture could increase wealth.

Adam Smith (1723-1790)

Scottish economist and author of "An Inquiry into the Nature and Causes of the Wealth of Nations" who advocated for laissez-faire and free trade.

Laissez-faire

A condition of governmental non-interference where capital is best employed for the production and distribution of wealth with a minimum of regulation.

John Maynard Keynes (1883-1946)

British economist who argued that state intervention and regulation of interest rates could control inflation and minimize unemployment.

Alfred Marshall (1842-1924)

British economist who systematized classical theories and claimed price and labor are determined by both supply and demand.

Karl Heinrich Marx (1818-1883)

German philosopher who argued that the bourgeoisie exploited the proletariat by paying them a fraction of their labor value and keeping the surplus value.

Maslow’s Hierarchy theory

Explains that man has endless needs and wants categorized into five levels: physiological, security/safety, social, esteem, and self-actualization.

Economic Freedom

The fundamental right of every human to control his or her own labor and property, including the freedom to consume, work, produce, and invest.

Economic Efficiency

The goal of obtaining maximum benefits where economic actions are undertaken only if additional benefits exceed additional costs ($\text{Benefits} > \text{Cost}$).

Utility Theory

Explains that consumers choose combinations of goods to maximize their happiness or "utility" subject to the constraint of disposable income.

Production Theory

The process of converting inputs into outputs, where producers choose combinations of inputs to minimize cost and maximize profits.

Price Theory

Explains how prices are predetermined in a competitive market; economic equilibrium occurs when the price demanded by consumers equals the price supplied by producers.