Summary Essentials of Economics

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This is the summary of the book "Essentials of Economics". The author(s) of the book is/are S L Brue, C R McConnell, e a. This summary is written by students who study efficient with the Study Tool of Study Smart With Chris.

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Summary - Essentials of Economics

  • 1 Limits, Alternatives, and Choices

  • What is economics?
    The socials science concerned with how individuals, institutions and society make choices under conditions of scarcity.
  • 1.1 The Economic Perspective

  • What is the economic perspective?
    A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs of their actions.
  • What are 'opportunity costs'?
    The value of the good, service of time forgone to obtain something else.
  • Economics presume humans behave in a way that they think maximizes their utility, e.g. that they are self-interested. Behaviour according to 'rational self-interest'.

  • What does rational or purposeful behaviour mean when understood in terms of economics
    Working to maximize utility, in a way that seems optimal, but does not have to be so: human logic may be faulty, decisions may be made under stress or under influence of emotion.
  • The decision to obtain the marginal benefit associated with some specific option always includes the marginal cost of forgoing something else.

  • What is marginal analysis?
    The comparing of marginal benefits and marginal costs to understand and estimate profits of actions.
  • 1.2 Theories, Principles and Models

  • Elements of the scientific method:
    - Observing real-world behaviour an outcomes
    - Based on these, formulating a hypothesis
    - Testing the hypothesis by comparing prediction and outcome
    - Accepting/rejecting/adapting the hypothesis as to match the outcome
    - Continuing to test
  • Economic principles are simplifications. How are they simplified? (three ways)
    • Generalized (averages)
    • Other-things-equal assumption
    • Graphical expression
  • 1.3 Microeconomics and Macroeconomics

  • What units does microeconomics concern itself with?
    Individual units, such as persons, households, firms.
  • Microeconomics looks at individual decision making, by measuring prices, numbers of employers, revenue, income, and expenditures of these individual units.

  • What is macroeconomics?
    The study of the economy as a whole, or of its aggregates, meaning the collections of categories of economic units (the 'consumer', etc.).
  • 1.4 Individual's Economic Problem

  • What is the economic problem?
    The fact that choices have to be made, because wants are unlimited, but means to fulfil them are limited.

  • The economic problem is expressed in the 'budget line', which shows the combinations of two products sb. can buy given his income. It shows the attainable and unattainable combinations.
  • 1.5 Society's Economic Problem

  • What are the economic resources?
    The land, labour, capital and entrepreneurial ability that go into the production of goods and services.
  • Land is not just land, but includes all natural resources, such as forests, oil, water.

  • The functions of an entrepreneur are as follows:
    • taking initiative in combining factors of production
    • making strategic business decisions
    • innovations
    • risk bearing
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