Summary Essentials of Economics

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Summary 1:

  • Essentials of Economics
  • S L Brue, C R McConnell, e a
  • or
  • Second edition

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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Summary 2:

  • Essentials Of Economics
  • Brue
  • or
  • 3rd

Summary - Essentials Of Economics

  • 1 Limits, Alternatives and Choices

  • Economics
    Social science that studies how people, institutions and sociaty make choices under conditions of scarcity
  • Economic perspective
    Rational decision making based on marginal benefits and costs, including scarcity and choice, purposeful behavior and marginalism
  • Opportunity costs
    The value of the good, service or time forgone to obtain something else
  • Utility
    Satisfaction obtained from consuming a good or service
  • Marginal analysis
    The comparison  of marginal benefits and costs
  • Scientific method
    The systematic pursuit of knowledge by observing facts and formulating and testing hypotheses to obtain theories, principles and laws
  • Principles
    Statements about economic behavior that enable prediction of the probable effects of certain actions
  • Other-things-equal assumption
    The assumption that factors other than those being considered do not change (ceteris paribus)
  • Microeconomics
    Economics concerned with individual decision making
  • Macroeconomics
    Economics concerned with the economy as a whole or major components of the economy
  • Aggregate
    Collection of specific economic units as if they were one
  • Economic Problem
    The need for individuals and society to make choices because wants exceed means
  • Budget line
    Line that shows various combinations of two products a consumer can purchase with a specific amount of income, given the product prices
  • Constant opportunity costs
    An opportunity cost that remains the same as consumers shift purchases from one product to another along a straight-lined budget line
  • Economic resources
    Land, labor, capital and entrepreneurial ability used in the production of goods and services (input, factors of production)
  • Land
    Natural resources (gifts of nature)
  • Labor
    Physical and mental talents and efforts of people
  • Capital
    Human-made resources such as buildings, machinery and equipment
  • Investment
    The purchase of capital resources
  • Entrepreneurial ability
    Human talent that combines other recourses to produce a product, make strategic decisions and bear risks
  • Consumer goods
    Products and services that directly satisfy consumer wants
  • Capital goods
    Items that are used to produce other goods and therefore do not directly satisfy consumer wants
  • Production posibilities curve
    A curve showing the different combinations of goods and services that can be produced in a fully employed economy, assuming the available supplies of resources and technology are fixed
  • Law of increasing opportunity costs
    The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises
  • Economic growth
    An outward shift of the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology
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