Fundamental Economic concepts (FECs) Economics- Unit 1: Chapter 1-2

Labor

________- workers and their level of education and experience; examples: teacher with no experience not as good.

Macroeconomics

________- decision- making by governments or countries (how much taxes, should we drill for oil)

Microeconomics

________- decision- making by individuals, households, and businesses (examples: pay bills, family vacation)

economic theory

All ________ is based on the fact that incentives influence human behavior in a predictable manner.

Benefit Analysis

Cost ________- a way to illustrate a choice or decision.

Positive incentive

________- rewards you get, added bonuses, (ex: sign contract and get an added bonus; buy one get one free)

Utility

________- your happiness or satisfaction.

Capital

________- any good or service used to produce another good or service; examples: car with all parts (lots of capital)

Producer incentive

________- produce (business owners)- modify producer behavior so they produce more (moving out to Ooltewah to meet people's needs)

FEC 1

Scarcity and choice

FEC 2

Rationality

Utility

your happiness or satisfaction

Rational self-interest

your personal utility (happiness) your rational self-interest is different than anyone elses bc based on your own personal thought process

Cost Benefit Analysis

a way to illustrate a choice or decision

If the benefits outweigh the costs

the choice is rational

Macroeconomics

decision-making by governments or countries (how much taxes, should we drill for oil)

FEC 3

Trade-offs and Opportunity Costs

Famous Economics Saying

"There is no such thing as a free lunch."

Costs are more than just money

time and energy; if you give something up it could be a cost (it can be anything)

Trade off

the choice you did not choose (go home to take a nap instead of working out)

Opportunity cost

benefits of the choice you didnt make; the benefits become costs (go to UTC instead of UTK lose the choice of an SEC school)

Benefits

not far from home, mostly quick, good fries

trade-off

benefits now become opportunity costs

Costs

pricey, downtown, time, gas, look nicer

Benefits

love the food, see the lake, good atmosphere

FEC 4

Incentives Matter

Intrinsic v. Extrinsic

intrinsic=inside; extrinsic= you are being influenced by something outside of your own self-interest

Negative incentive

consequences or punishments

Consumer incentive

buyers and consumers (most effective is sales); modifying consumer behavior to consume more

Producer incentive

produce (business owners)-modify producer behavior so they produce more (moving out to Ooltewah to meet people's needs)

Problems with Incentives

people learn how to work the system to get its best benefit; not perfect

Negative incentive

Consequence or punishment

Consumer incentive

buyers and consumers (most effective is sales); modifying consumer behavior to consume more

intrinsic

your being influenced by something inside your self interest

extrinsic

your being influenced by something outside of your own self interest

incentive

pushing you to make a choice: any reason you do something

Trade off

The choice you do not choose

opportunity cost

benefits of the choice you didn’t make; the benefits become costs

Cost are more than just money

time and energy; if you give something up it could be a cost (it can be anything)

Rational self interest

your personal utility (happiness) your rational self interest is different than anyone else’s bc based on your own personal thought process

Entrepreneurial ability

ability to take land, labor and capital and create a good or service that people want to buy; examples: good management

Land

anything on the land or in the land that has value

Scarcity

everything and everywhere is limited