Economics: Incentives, Markets, and Key Concepts (Lecture Notes)

A set of Question and Answer flashcards covering incentives, market types, efficiency concepts, and foundational economic analysis from the notes.

What is an incentive in economics and how do costs and benefits influence decisions?

An incentive is something that encourages a person or organization to take a particular action; decisions are influenced by a comparison of costs and benefits.

What is the effect of harsher punishments on crime rates?

Harsher punishments (e.g., longer jail times) tend to decrease crime.

What are tariffs?

A tax imposed by a government on imports.

What impact does the DNA sample requirement have on the likelihood of a new conviction for serious violent offenders within five years?

It reduces the likelihood by about 17 percent.

What is Looney’s idea about lower-class loan borrowers and loan cancellation incentives?

Policies that make loan forgiveness easier may lead lower-class borrowers to borrow more, expect to pay back only half, colleges to raise tuition, and taxpayers to bear more costs.

What is scarcity in economics?

Wants are unlimited while resources are limited.

What is a market in economic terms?

A group of buyers and sellers of a good and the institution or arrangement by which they come together and trade.

What does rational behavior mean for consumers and firms?

They use all available information to achieve their goals.

What is marginal cost?

The extra cost of producing one more unit (e.g., $3 for one more pizza).

What is marginal benefit?

The extra happiness or value gained from one more unit (e.g., $5 worth of enjoyment).

What characterizes a centrally planned economy?

The government decides how economic resources are allocated.

What was a key consequence of central planning in the Soviet Union?

Low standard of living due to inefficiency and poor allocation of resources.

What defines a market economy?

Firms and households in markets determine the allocation of resources, typically with private ownership and competition.

What is a mixed economy?

An economy where markets determine most allocations, but the government intervenes in some areas (e.g., social security).

What is voluntary exchange?

A transaction in which both buyer and seller are made better off.

What is productive efficiency?

Producing a good or service at the lowest possible cost.

What is allocative efficiency?

Producing goods and services in a way that matches consumer preferences.

What is MB = MC and why is it important?

Marginal benefit equals marginal cost; this condition is desirable for efficient production.

What is a marginal analysis?

An analysis that compares the additional benefits and costs of a decision.

What is a positive analysis?

Describes what is and can explain or predict economic events without judgement.

What is a normative analysis?

Describes what ought to be; based on values and opinions.

What is human capital?

A college-educated worker with more skills and productivity than those with only a high school diploma.

What is capital in economics?

Manufactured goods used to produce other goods and services (e.g., machine tools, trucks, factory buildings).

What is opportunity cost?

What you are sacrificing to obtain something else; the cost of the next best alternative.