Introduction to Microeconomics and The Economy


Flashcards on the basic principles of economics for South African students. (Made with love by a South African ECON1016 student at Wits University in 2015)
Flashcards by BryanTurner, updated more than 1 year ago
Created by BryanTurner about 9 years ago

Resource summary

Question Answer
What is economics? Economics is the study of how scarcity affects the choices society makes.
When would a resource be scarce? The demand of that resource at a zero price would exceed the supply that's available.
Define the "Fallacy of Composition" An invalid conclusion based on the assumption that what's true for a part is what's true for the whole.
Define the "Post-Hoc Fallacy" An invalid conclusion based on a false cause and effect relationship. "If event A happened before event B, then event A caused event B"
What is an opportunity cost? An opportunity cost is the value of the best alternative that you must sacrifice.
What's the difference between an explicit and an implicit opportunity cost? An explicit cost is what you would actually pay for the item/service. (Visiting my friend will cost taxi fare of 20 credits) An implicit cost is the monetary value you would give to the item. (Visiting my friend is important to me and I would pay 30 credits to do so)
Define an 'economic crisis' for a country. A country has an 'economic crisis' when supply is extremely low and demand is extremely high. Example: 'Credit crunch' is when banks have lent too much money (supply is low) and people are denied loans more frequently (demand is high).
What is income distribution? Income distribution is the measure of how the total income of a country is divided between different groups or individuals.
The Law of Diminishing Marginal Returns Each worker adds less to output than the previous extra worker that was added.
Production Possibility Frontier (PPF) For each output of one good, the maximum amount of the other good that can be produced. Usually looks like
Define production efficiency More output of one good can be obtained only by sacrificing output of the other goods.
What's the difference between comparative and absolute advantage? Comparative advantage means one person has an advantage because their good has a lower opportunity cost in production than someone else. Absolute advantage means that one person is the lowest-cost producer of that good.
Define 'the market' The market is a process by which households' decisions about compassion of alternative goods, firms' decisions about what and how to produce, and workers' decisions about how much work are all reconciled by adjustment of prices.
What are the differences between command and free-market economy? Command economy (Karl Marx) was designed for the government to have full control over all economic decisions i.e. who has to manufacture what. Free-market economy (Adam Smith) was designed for the people to have control with no governmental intervention.
What's the difference between positive and normative economics? Positive economics studies objective or scientific explanations of how the economy works. Normative economics offers recommendations based on personal value judgements.
What's the difference between macroeconomics and microeconomics? Microeconomics shows how individuals and firms make economic decisions. Macroeconomics shows interactions in the economy as a whole.
Define Gross Domestic Product (GDP) The value of total output produced in an economy in a given period.
Define Aggregate Price Level APL measures the average price of goods and services.
Define 'Unemployment Rate' The fraction of the labour force unemployed BUT looking for work.
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