scarcity
the concept that there is not enough of a good freely available from nature so that people can have as much as they would like
types of resources
1. human resources
2. physical resources
3. natural resources
Incentives matter
People respond to changing incentives in a predictable way
are the same things rational for everyone
no
utility
The subjective benefit or satisfaction a person expects from a choice or course of action
why is there no such thing as a free lunch
because resources are scarce, tradeoffs must be made
opportunity cost
The highest valued alternative that must be sacrificed when choosing an option.
decisions are made at the
margin
law of diminishing marginal utility
As the quantity of a good consumed increases the extra satisfaction gained decreases
cost-benefit analysis
economic model that compares the marginal costs and marginal benefits of a decision
economic efficiency
a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.
do people want to be fully informed to make a rational decision
no
voluntary trade promotes
economic progress
trade creates value by
putting goods into the hands of those who want them the most
Voluntary trade makes it possible to produce things at a lower cost through
mass production techniques
transaction costs
time, effort and other resources needed to search out and complete an exchange
middleman
reduces transaction cost
transaction costs are
an obstacle to trade
what brings the choices of buyers and seller into balance
prices
Profits direct businesses
toward activities that increase wealth
People Earn Income by
helping others
do entrepreneurs expand the pie or take a slice of it
expand
Production, not just ___, provides the source of high living standards
jobs
economic progress comes through
1. trade
2. investment
3. better ways of doing things
4. economic growth
what part of investments are costly
current consumption
improvements in technology and economic organization
spurs economic progress
creative destruction
replacing old products and production methods by innovative new ones that consumers judge to be superior
examples of economic organization
private property rights, competition, personal and economic freedom
the invisible hand
the tendency for people while pursuing their own interests to promote the economic well-being of society
Secondary effect
the indirect impact of an event or policy that may not be easily and immediately observable
pitfalls to avoid in economic thinking
1. Violation of the ceteris paribus principle
2.The belief that good intentions equal desirable outcomes
3. The fallacy of composition
4. The belief that association is causation
The Nirvana Fallacy
The logical error of comparing the actual situation with its idealized counterpart rather than the actual alternative