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Economics
- Is the study of ALLOCATION OF SCARCE RESOURCES to meet UNLIMITED
human wants.
Economizing of Resources
- refers to making optimum use of the available resources.
METHODS IN ECONOMICS
USEFULNESS OF ECONOMICS
- economics provides an objective mode of analysis, with rigorous models
that are predictive of human behavior.
a. Scientific approach
b. Rational choice
ASSUMPTIONS IN ECONOMICS
- economic models of human behavior are built upon assumptions; or
simplifications that permit rigorous analysis of real-world events, without
irrelevant complications.
a. model building - models are abstractions from reality - the best model is
the one that best describes reality and is the simplest Occam’s Razor.
b. simplifications:
1. ceteris paribus - means all other things equal.
2. There are problems with abstractions, based on assumptions. Too often, the
models built are inconsistent with observed reality - therefore they are faulty
and require modification. When a model is so complex that it cannot be easily
communicated or its implications easily understood - it is less useful.
GOALS AND THEIR RELATIONS
c. Economics is not value free, there are judgments made concerning what is
important:
1. Individual utility maximization versus social betterment
2. Efficiency versus fairness
3. More is preferred to less
2. options - identify the various actions that will accomplish the stated goals
& select one, and
OBJECTIVE THINKING:
b. fallacy of composition - is simply the mistaken belief that what is true for
the individual, must be true for the group.
c. cause and effect - post hoc, ergo propter hoc - After this, because of this
fallacy.
1. Focus on the addition to benefit, and the addition to cost as the basis
for decision-making.
MODULE 2 : THE ECONOMIC PROBLEM: SCARCITY AND CHOICE
Capital - refers to the things that are themselves produced and then used to
produce other goods and services.
The basic resources that are available to a society are factors of production:
1. Land
2. Labor
3. Capital
Capital Goods - are goods used to produce other goods and services.
Economic Systems - are the basic arrangements made by societies to solve the
economic problem. They include:
● Command economies
● Laissez-faire economics
● Mixed Systems
Market - is the institution through which buyers and sellers interact and engage in
exchange.
Consumer sovereignty - is the idea that consumers ultimately dictate what will be
produced (or not produced) by choosing what to purchase (and what not to
purchase).
Free-enterprise - under a free market system, individual producers must figure out
how to plan, organize, and coordinate the production of products and services.
Since markets are not perfect, governments intervene and often play a major role in
the economy. Some of the goals of government are to:
1. Open Economy is a type of economy where not only domestic factors but
also entities in other countries engage in trade of products
(goods and services).
2. Closed Economy is one that does not interact with other economies in the
world. There are no exports, no imports, and no capital
flows.
3. Foreign Invest- quite simply, is investing in a country other than your home
ment one.
5. Balance of Trade also known as the trade balance, refers to the difference
(BOT) between the monetary value of a country's imports and
exports over a given time period.
7. Capital Account records the net change of assets and liabilities during a
particular year.
9. Capitalist countries is on
the role of individuals rather than the state.
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INTERDEPENDENCE AND THE GLOBAL ECONOMY (MODULE 3)
Study online at https://quizlet.com/_cp8rde
12. THE CHARAC- (1) the division of labor & specialization,
TERISTICS OF A (2) significant reliance on capital goods,
TYPICAL OF (3) reliance on comparative advantage.
MARKET SYS-
TEM
ARE:
14. Economic Money systems began to be developed for the function of ex-
change. The use of money as currency provides
a centralized medium for buying and selling in a market.
16. FIAT MONEY is any money that is accepted by a government for paying
taxes or debt, but is not pegged to or backed directly by
gold and other valuables.
19. Perfect Competi- There is generally a large number of buyers and sellers.
tion Buyers and sellers sell identical products (there is no need
for advertising).
21. Natural Monop- market situation where the costs of production are mini-
oly mized by having a single firm produce the product.
26. OLIGOPOLY Few very large sellers dominate the industry and compete
with one another. Examples: Burger King, McDonald's and
Wendy's.
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DEMAND AND SUPPLY (Module 4)
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1. MARKET Place where goods and services are brought and sold.
2. MARKET MECH- The market for a product works on certain market prin-
ANISM ciples i.e the laws that govern the working of the market
system, also called market mechanism.
4. MARGINAL UTIL- The change in utility derived from the consumption of one
ITY more unit of a commodity.
5. DIMINISHING The idea that utility with the amount added to total utility
MARGINAL will decline when additional units are consume past some
UTILITY point has also the status of principle.
6. Income Effect Is the effect that as a person's income increases (or the
price of item goes down {which effectively increases com-
mand over goods} more of everything will be demanded.
9. CHANGES IN DE- Movements of the demand curve itself, either to the left or
MAND right.
12. FACTORS AF- The price of the Product - generally the higher the price
FECTING SUP- that a firm can get for its products, the more it will offer for
PLY sale.
13. MARKET EQUI- Putting Demand and Supply Together - The market price
LIBRIUM can be seen at the point where the demand and supply
lines across.
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