Microeconomics - ECON 103 CH1 - CH2 vocab

Microeconomic Principles and Problems

Austerity

where governments reduce or eliminate spending on social programs like food stamps, unemployment insurance, and education and/or increase taxes in order to balance the government budget (they try to balance the incoming tax revenues with the spending amounts going out)

Why austerity doesn’t work in a recession

if a government cuts spending during a recession, less money comes in and less money comes out - people/businesses have less money to spend and become pessimistic

Mainstream economics (ME)

the study of how society manages its scarce resources to satisfy individual’s unlimited wants

—> assumes scarcity and raionality

Political economics (PE)

The study of how different economic groups within an economic system interact to determine the production and distribution of goods and services and of society’s surplus

Progressive political economics (PPE)

The study of societal provisioning — the economic processes that provide the goods and services required by society to meet the needs of its members —> focuses on culture/history

Radical political economics (RPE)

The study of power relations in society, especially conflicts over the allocation of a society’s resources by various social classes, and how those conflicts cause society to evolve. —> power, conflict, and technology

Pluralist economics

a social science whose practitioners, from a variety of distinct schools of thought, study economics, how they grow and change, and how they produce and distribute the goods that societies need and want.

Unregulated market capitalism

An economic system in which the main productive resources of society— the labor, land, machinery, equipment, and natural resources— are owned by private individuals who use those resources to produce goods and services that are bought and sold in markets for profit.

Mixed market capitalism

An economic system in which private sector firms and individuals produce goods and services for markets for profits, and a public sector established by the government regulates those markets and produces public goods such as roads, schools, health care, airports, etc. that wouldn’t be provided adequately by the private markets.

Democratic socialism

An economic system in which the most important resources of society are controlled democratically by all citizens, including workers who usually have little say in how market capitalist economies are run —> preferred by radical economists.

Communism

An economic system in which the government controls society’s productive resources and makes the major economic decisions. A classless, stateless system in which there is no private property and everyone shares in production and consumption according to individual abilities and needs.

Economics

The study of the systems that societies build to produce and distribute the material needs of life; the power structures that result from those systems, the ideological justifications, and the social, political, economic, and humanistic effects of those systems on individuals and groups.

Ceteris Paribus Assumption

That all other variables are held constant, we only change one factor at a time so that the theorist can focus only on the relationship between the variables in which they are most interested.

Rational Choice Theory

Mainstream models assume that people are self-interested and rational, making them predictable. Self Interest + Rationality = Rational Choice Theory

Rational decision makers will always want to maximize their benefits and minimize their costs and make choices accordingly

Marginal Analysis

people make choices “on the margin” (marginal = think change)

Opportunity Cost

Every time a choice is made to use resources in one way, the next best alternative not chosen is foregone. Ex. I spend money on college rather than a vacation

Economic model

A theoretical, simplified construct designed to focus on a key set of economic relationships. Economists use models because they cannot conduct real-world experiments that isolate key factors.

Production Possibilities Curve (PPC)

A model that shows all combinations of two goods that can be produced, while holding the amount of resources and the level of technology fixed.

Reciprocity

Obligatory and reciprocal gift-giving between persons who stand in some specific social relationship with one another. Ex. christmas, birthdays, weddings

Redistribution

Obligatory transfers to some central authority, which parcels out the products. Ex. taxes, parent’s paychecks

Market Pattern

Patterns of meeting places for the sole purpose of buying and selling, no repeated social relationships, very new. Ex. grocery shopping

Capitalism

An economic system in which factors of production are privately owned and the market controls distribution; the central imperative or point is of private investors to make profit

Self-regulating market system

An economic system in which all factors of production are bought and sold, all products are bought exclusively to be sold, and all incomes are derived from the market. Small-scale capitalism

Industrial Capitalism

An economic system dominated by the mechanization and industrialization of production and mass consumption. Large-scale capitalism

Administrative or American Capitalism

A system of capitalism with 2 sectors, 5 players, and 2 different sets of rules

• Marker Sector: small businesses, non-unionized workers, and individual consumers

• No political or economic power, large unions, and the federal government

• Administered Sector: large corporations, large unions, and the federal government don’t play by the rules; they can change the market. Can set prices (power); the rules of the market do not apply. Ex. Walmart, Amazon

Socialism

An economic system in which all non-labor factors of production are owned by the state, which exercises control over their allocation.

• Marxian Socialism - government is in complete control

• Democratic Socialism - people vote for the government, and the government controls

Law of Increasing Opportunity Cost

If resources are specialized and all resources are used efficiently, then, as more and more of a particular good is produced, the opportunity cost of producing each unit of that good will increase.

Capital goods

machinery, equipment, buildings, and productive resources (other than labor) used to produce goods and services

Consumer goods

Goods that are produced and consumed by consumers, that have no/contribute no future productivity

Conspicuous consumption

Purchasing goods in order to display social status

Institutions

The organizations, rules, social structures, and habits that structure human interaction and the economy.

Scarcity

When a society’s seemingly unlimited desire for goods and services exceeds the resources available to produce and provide those goods and services.

Choice

Involves consumers, producers, and governments selecting from among the limited options that are available to them due to scarcity