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Summary Essentials of Economics

- S L Brue, et al
129 Flashcards & Notes
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A snapshot of the summary - Essentials of Economics Author: S L Brue, C R McConnell, e a

  • 1 Limits, Alternatives, and Choices

  • 1.1 The Economic Perspective

  • 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.
  • 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

  • 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.
  • 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.

  • 1.5 Society's Economic Problem

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

  • What does the production possibilities model show?
    The possible ways of using factors of production to provide two kinds of  goods and services, given full employment, fixed resources and technology.
  • What is the 'law of increasing opportunity costs'?
    It means that the more of a product a society produces, the greater the opportunity costs of obtaining an extra unit becomes. In the curve this is shown by the increasing slope - it becomes steeper.
  • What is the rationale behind the law of increasing opportunity costs?
    Economic resources are not always completely adaptable to the choices made: land used for farming in the first place will be fertile, but once the production increases, less fertile land will have to be used, thus lowering the output. The sacrifice per obtained unit will be greater.
  • 1.7 Unemployment, Growth and the Future

  • Economic growth is the result of what three developments?
    • increases in supply of resources
    • improvement in resource quality
    • technological advances
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