Intro to Economics

involves beginning terms of economics, incentives, scarcity, cost vs price, factors of production

What is an incentive?

rewards/punishments that get people to behave a certain way

What are the three types of incentives?

1. economic

2. social/moral

3. coercive

What is an economic incentive?

A person can expect a material reward, such as money to do something

examples: overtime, getting a treat, money after chores, a discount/sale

What are social/moral incentives?

exists where a choice is widely regarded as the “right thing to do” or it is indecent to act otherwise.

examples: when an amish person turns 16 and can choose to stay in the community or leave

What is the “rule” of incentives?

People respond predictably to incentives; understanding incentives allows us to predict the behaviors of others

What is economics?

The study of the choices that people make on how to use scarce resources that have alternative uses

What is scarcity?

A combination between limited resources and unlimited wants

What is the difference between scarcty and shortage?

Shortage is a temporary situation in which something is not available, while scarcity always exists

What is true about the way people behave?

All people behave rationally = when the benefits outweigh the costs (max our utility/satisfaction)

What is rationing?

Method used to distribute goods and services

What does “allocate” mean?

To distribute

What are 8 common rationing methods?

1. first come first serve

2. seniority

3. contest/competition

4. vote

5. authority

6. personal characteristics

7. lottery/random draw

8. auction

What is the “rule” about economics?

Nothing in economics is ever free; all choices include trade-offs

What are trade-offs?

alternatives given up when a decision is made

What is an opportunity cost?

the most desirable alternative when a decision is made (#1 on the list)

What does TINSTAAFL?

There is no such thing as a free lunch

What is cost?

Anything that you give up

What is price?

A specific money ($) amount you pay/give up

What is the “rule” about prices and costs?

All choices involve cost.. but only some involve price

What is cost-benefit analysis?

Systemic process for calculating and comparing benefits and costs of a project/decision/government policy (weighing the pros and cons)

What are the factors of production?

Resources used to produce goods and services

What is land?

Any natural resource used to produce goods and services

What is labor?

Workforce you pay in order to produce goods and services

What is physical capital?

Man-made tool used to produce goods and services

What is human capital?

Education/experience used to produce goods and services

What are goods?

Tangible items sold for profit

What are services?

Activities performed for others for profit

What is an entrepreneur?

Person that combines the factors of production to produce goods and services