economie voc

Chapter 1

The fundamentals of economics

Economics

the social science that studies how societies use scarce resources to produce valuable goods and services, and to distribute them among people.

Inputs

The limited resources in the world (labour, capital, natural resources, and entrepreneurship)

Scarcity

The excess of human wants over what can actually be produced.

A trade-off

Giving up one thing to get something else.

The opportunity cost

Is what you give up to get something

Rational choices

The weighing up of marginal costs and marginal benefits of any decision or activity.

Marginal changes

Describes small, additional changes to an existing plan or activity.

Marginal Benefit

The additional satisfaction, utility, or financial gain a consumer or producer receives from consuming or producing one additional unit of a good or service.

Marginal Cost

The additional cost incurred by producing or consuming one additional unit of a good or service.

Homo economicus

Is assumed to have perfect information, which enables to weigh up the benefit of any activity against its (opportunity) cost, in order to make optimal choices.

Bounded rationality

The limit to the rational choices people make, until they make irrational decisions.

Homo socialis or homo universalis

Putting forward a variety of goals that go beyond merely seeking profit maximization.

The 17 Sustainable Development Goals (SDGs)

Highlights a holistic perspective for solving societal and economic problems by integrating multiple components as a system.

Incentives

A change in marginal cost or a change in marginal benefit will change the incentives and will lead people to change their choice.

Self-interest.

Choices made to benefit oneself

Social-interest

Choices made to benefit society

The invisible hand

A metaphor for the self-regulatory effect of markets, where each individual, by acting in his own self-interest, may actually promote the collective well-being for society as a whole.

A fallacy

A flaw in logic or an incorrect assumption that leads to mistaken conclusions about how economies work.

The post hoc fallacy

Occurs when we assume that, because one event occurred before another event, the first event caused the second event.

Correlation

Indicates that two events or processes are associated in a measurable way.

Causality

Indicates that one event causes another.

The fallacy of composition

This is the mistaken assumption that what is true for one must be true for all involved.

Ceteris paribus

Means that all other variables are held constant.

The ceteris paribus fallacy

Lies in the fact that if we fail to hold the other variables constant, we may end up drawing the wrong conclusion on a certain relationship.

Microeconomics

Concerned with individual parts of the economy. It is concerned with the demand and supply of particular goods and services, and resources.

Macroeconomics

Concerned with the economy as a whole. It thus focuses on aggregate demand and aggregate supply.

Aggregate demand

The total amount of spending in the economy, whether by consumers, by customers outside the country for our exports, by the government, or by firms when they buy capital equipment or stock up on raw materials.

Aggregate supply

The total value of goods and services produced in the economy.

The Positive Approach

An objective, fact-based analysis that focuses on what is. It describes, tests, and explains economic behaviors and relationships using verifiable data and cause-and-effect statements without applying personal values or judgment.

The Normative Approach

A subjective, value-based analysis that focuses on what ought to be or what should be. It involves ethical judgments, opinions, and value choices regarding economic policies and outcomes that cannot be proven right or wrong using data alone.

Economic model

A simplified representation of an economic environment.