Unit 1: Making Good Decisions (NoteCards)

Economics 1014 with Pereya at University of Missouri- Columbia

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By: Caitlin Smith
Created: 2011-12-07
Size: 42 flashcards
Views: 49

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bankruptcy

when a firm cannot produce and sell a product efficiently, not using the most economically efficient way

Behavioral Economics

field of economics that combines the study of psychology with the study of economics in order to better understand the decision making processes of buyers and sellers engaged in market transactions

capital-intensive

this type of production process occurs whenever the producer relies heavily on machinery(capital) with less reliance on workers(labor) to produce a product

command economy

method of allocating scarce resources without using markets. central planners make the decisions. (communist)

consumption efficiency

making sure we make the best use of our scarce resources.

cost-benefit analysis

considering all marginal costs and marginal benefits

economic efficiency

making the absolute best use of our scarce resources (people who value most)

economic pie

total amount of wealth or economic surplus that can be produced for society through production and consumption

economic surplus

net change in someones well-being as a result of making a decision (net gain)

equity

making sure the wealth is equally distributed

externalities

cost or a benefit of your decision that is external to your private cost/benefit analysis (cause market failures)

incentives

encouraging someone to make a decision you can offer them a benefit

inferior goods

the demand for that good falls when the persons income rises

invisible hand

the way the free market operates through unorganized negotiation of buyers and sellers trying to make themselves happy

jargon

specialized language of a field of study

labor-intensive

the producer relies heavily on workers(labor) with less reliance on machinery(capital) to produce a product

monopoly

exists if there is only one producer of a product in a particular market (consumers have no choice but to buy from that producer)

natural experiments

occurs when some naturally occurring event provides the scientist a change in an important variable that allows the scientist to observe how people respond to that change

needs

high valued wants

negative consumption externality

exists whenever a consumer makes a buying decision that harms people around him or her and the consumer fails to include this harm in the cost/benefit analysis.

negative production externality

exists whenever a producer makes a selling decision that harms people around him or her and the producer fails to include this in the cost/benefit analysis

next best opportunity

when determining the cost of a decision made, we need to know what choices had to be sacrificed to make this choice (what is worth to you the most, second most, etc)

normal goods

if the demand for the good rises when the persons income rises

normative statement

not potentially testable or provable (ought, should, good, bad, fair, and unfair)

on the margin

we believe we make decisions one small step at a time

opportunity cost

the true cost of any decision is the value of the next best opportunities sacrificed when you make that decision rather than the actual dollars paid

positive statement

statement that is potentially testable and provable

pigovian taxes

used to fix a market failure that occurs because of a negative externality (tax on cigarettes)

pigovian subsidies

should be in the amount of the externality and should be given to buyers if it is a consumption externality and should be given to sellers if it a production externality

positive consumption externalities

exists whenever a producer makes a selling(production) decision that benefits people around him or her and the producer fails to include this benefit in the cost/benefit analysis

positive production externalities

exists whenever a producer makes a selling decision that benefits people and the producer fails to include this in the cost/benefit

production efficiency

making sure we produce the goods and services people want most, producing least waste possible

profit

earns profit whenever it earns more revenue from the production and sale of a product than it spends producing that product (equals total revenue earned minus total cost of production)

ration

decide who gets what (free market system uses market price as the rationing device

rational

making decisions in a consistent manner

resource

inputs used to produce goods and services (oil, steel, timber)

scarcity

not enough of something

scientific method

wayy of organizing the process used by scientists to better understand the world (observe, hypotheses, predictions, test, revise, additional testing)

simplifying assumptions

take away all the unnecessary complexities so that we can just focus on the parts of the model that are important to help

sunk cost

no way to eliminate that cost by any new decision made (cannot be changed/not considered in new CBA)

utility

measures the well-being or happiness people get from making decisions (economic surplus)

wants

anything that we feel would make us happy

About this deck

By: Caitlin Smith
Created: 2011-12-07
Size: 42 flashcards
Views: 49

About StudyBlue

“I have used this website for three exams, and I see a huge difference in my test results.”
Naj