Microeconomics: Chapter 1 - 5 Foundations of Economics

question

Scarcity

answer

the limited nature of society's resources, given society's unlimited wants and needs

question

What is Economics?

answer

the study of how people allocate their limited resources to satisfy their unlimited wants
- requires 1 or more trade offs
- study of how people make decisions

question

Microeconomics

answer

Study of individual units that make up the economy

question

Macroeconomics

answer

Study of the overall aspects and workings of an economy "big picture"

question

What are the 5 Foundations of Economics?

answer

1. Incentives Matterra
2. Trade-Offs
3. Opportunity cost
4. Marginal thinking
5. Trade Creates Value.

question

Positive Incentives

answer

encourage action by offering rewards or payments

question

Negative Incentives

answer

discourage action by providing undesirable consequences or punishments

question

Direct Incentive

answer

"Here is what I want you to do, and here is what I am going to do in order to get you to do it."
Generally easy to recognize

question

Indirect Incentive

answer

A secondary change in behavior brought on by the original incentive
Difficult to recognize

question

Unintended Consequence

answer

unplanned result (usually negative and unwanted) of an incentive
e.g. mowing lawn slowly for hourly wage

question

Trade Offs

answer

to have one thing, you have to give up another thing
- implies choice

question

Marginal Thinking

answer

requires decision-makers to evaluate whether the benefit of one more unit of something is greater than its cost

question

Economic Thinking

answer

requires a purposeful evaluation of the available opportunities to make the best decision possible

question

Opportunity Cost

answer

the highest-valued alternative that must be sacrificed in order to get something else

question

Trade Creates Value

answer

Trade creates value because participants in markets are able to specialize in the production of goods and services that they have a comparative advantage in making.

question

Markets

answer

Bring buyers and sellers together to exchange goods and services

question

Trade

answer

the voluntary exchange of goods and services between two or more parties

question

Barter

answer

individual trading a good or service in exchange for something they want

question

Double Coincidence of Wants

answer

occurs when each party in an exchange transaction happens to have what the other party desires

question

Comparative Advantage

answer

the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can

1 of 20

question

Scarcity

answer

the limited nature of society's resources, given society's unlimited wants and needs

question

What is Economics?

answer

the study of how people allocate their limited resources to satisfy their unlimited wants
- requires 1 or more trade offs
- study of how people make decisions

question

Microeconomics

answer

Study of individual units that make up the economy

question

Macroeconomics

answer

Study of the overall aspects and workings of an economy "big picture"

question

What are the 5 Foundations of Economics?

answer

1. Incentives Matterra
2. Trade-Offs
3. Opportunity cost
4. Marginal thinking
5. Trade Creates Value.

question

Positive Incentives

answer

encourage action by offering rewards or payments

question

Negative Incentives

answer

discourage action by providing undesirable consequences or punishments

question

Direct Incentive

answer

"Here is what I want you to do, and here is what I am going to do in order to get you to do it."
Generally easy to recognize

question

Indirect Incentive

answer

A secondary change in behavior brought on by the original incentive
Difficult to recognize

question

Unintended Consequence

answer

unplanned result (usually negative and unwanted) of an incentive
e.g. mowing lawn slowly for hourly wage

question

Trade Offs

answer

to have one thing, you have to give up another thing
- implies choice

question

Marginal Thinking

answer

requires decision-makers to evaluate whether the benefit of one more unit of something is greater than its cost

question

Economic Thinking

answer

requires a purposeful evaluation of the available opportunities to make the best decision possible

question

Opportunity Cost

answer

the highest-valued alternative that must be sacrificed in order to get something else

question

Trade Creates Value

answer

Trade creates value because participants in markets are able to specialize in the production of goods and services that they have a comparative advantage in making.

question

Markets

answer

Bring buyers and sellers together to exchange goods and services

question

Trade

answer

the voluntary exchange of goods and services between two or more parties

question

Barter

answer

individual trading a good or service in exchange for something they want

question

Double Coincidence of Wants

answer

occurs when each party in an exchange transaction happens to have what the other party desires

question

Comparative Advantage

answer

the situation where an individual, business, or country can produce at a lower opportunity cost than a competitor can

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Microeconomics: Chapter 1 – 5 Foundations of Economics

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