Economics at Maastricht University | Flashcards & Summaries

Lernmaterialien für Economics an der Maastricht University

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What does Economics study?

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Economics is the study of how agents choose to allocate scarce resources and how those choices affect society.


Choice—not money—is the unifying feature of all the things that economists study. 

In fact, economists think of almost all human behavior as the outcome of choices.

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What is the tradegy of the commons?

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The tragedy of the commons results when common pool resources are dramatically overused.


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What is Opportunity cost?

What are trade-offs and budget constraints? (definition)

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Opportunity cost is the best alternative use of a resource.

(The opportunity cost of an hour of your time is at least the value that you would

receive from an hour of work at a job, assuming that you can find one that fits your

schedule.)


An economic agent faces a trade-off when the agent needs to give up one thing to get something else.


A budget constraint shows the bundles of goods or services that a consumer can choose given her limited budget.

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What does Elasticity measure?

State the different demand elasticities! 

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Elasticity measures the sensitivity of one economic variable to a change in another.


1. The price elasticity of demand

2. The cross-price elasticity of demand

3. The income elasticity of demand

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What is the Law of Diminishing Returns?

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The Law of Diminishing Returns

states that successive increases

in inputs eventually lead to less

additional output.


Adding too many workers can actually decrease overall production

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When are Externalities occurring?

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An externality occurs when there is a spillover from one person’s actions to a bystander. If left alone, people will generally not account for how their actions affect others—whether positive or negative.


The link among all three of these market failures is that there is a difference between social and private benefits or social and private costs, causing the individual to face different incentives than society faces.

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What is the buyer's problem and what does it consist of?

What is meant by the budget set of a consumer?

What is meant by budget constraint?

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The first question that we explore is “How do consumers decide what to buy?” We can frame this question as a problem—the buyer’s problem.


Economists identify three essential ingredients of the buyer’s problem:

1. What you like

2. Prices of goods and services

3. How much money you have to spend


A budget set is the set of all possible bundles of goods and services that can be purchased with a consumer’s income.

Economists usually describe the budget set in the context of another concept—the budget constraint. The budget constraint represents the goods or activities that a consumer can choose that exactly exhaust her entire budget.

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Define:

Positive and Normative Economics.

Normative Analysis and Public Policy.

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Positive Economics describe what people actually do.

Describing what has happened

or predicting what will happen is referred to as positive economics or positive economic analysis.


Normative Economics recommends what people, including society, ought to do.

Normative economics, the second of the two types of economic analysis, advises individuals and society on their choices. Normative economics is about what people ought to do. Normative economics is almost always dependent on subjective judgments, which means that normative analysis depends at least in part on personal feelings, tastes, or opinions. So whose subjective judgments do we try to use? Economists believe that the people being advised should determine the preferences to be used.


Normative Analysis and Public Policy.

Normative analysis also generates advice to society in general. For example, economists are often asked to evaluate public policies, like taxes or regulations. When public policies create winners and losers, citizens tend to have opposing views about the desirability of the government program. One person’s migratory bird sanctuary is another person’s mosquito-infested swamp. 


When a government policy creates winners and losers, economists need to make some ethical judgments to conduct normative analysis. Economists must make ethical judgments when evaluating policies that make one group worse off so another group can be made better off. Ethical judgments are usually unavoidable when economists think about government policies, because there are few policies that make everyone better off. Deciding whether the costs experienced by the losers are justified by the benefits experienced by the winners is partly an ethical judgment.

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What is a Pecuniary Externality?

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A pecuniary externality occurs when a market transaction affects other people only through market prices.


Pecuniary externalities do not create market inefficiencies!

You could say that pecuniary externalities are necessary for efficient markets because as goods become more or less scarce, their price should change. Negative and positive externalities, such as pollution and education, cause market inefficiencies because goods are either over-or under-produced and consumed.

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What is Cost-Benefit Analysis and how does it work?

What is Net benefit?

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Cost-benefit analysis is a calculation that identifies the best alternative, by summing benefits and subtracting costs, with both benefits and costs denominated in a common unit of measurement, like dollars.


Net benefit is the sum of the benefits of choosing an alternative minus the sum of the costs of choosing that alternative.

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What is the Production Function?

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The relationship between the quantity of inputs used and the quantity of outputs produced is called the production function.

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Define Equilibrium

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Economists think of the world as a large number of economic agents who are interacting and influencing one another’s efforts at optimization. Recall that equilibrium is the special situation in which everyone is optimizing, so nobody would benefit personally by changing his or her own behavior.


An important clarification needs to accompany this definition. When we say that nobody would benefit personally by changing his or her own behavior, we mean that nobody believes he or she would benefit from such a change. In equilibrium, all economic agents are making their best feasible choices, taking into account all of the information they have, including their beliefs about the behavior of others. We could rewrite the definition by saying that in equilibrium, nobody perceives that they will benefit from changing their own behavior.

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Q:

What does Economics study?

A:

Economics is the study of how agents choose to allocate scarce resources and how those choices affect society.


Choice—not money—is the unifying feature of all the things that economists study. 

In fact, economists think of almost all human behavior as the outcome of choices.

Q:

What is the tradegy of the commons?

A:

The tragedy of the commons results when common pool resources are dramatically overused.


Q:

What is Opportunity cost?

What are trade-offs and budget constraints? (definition)

A:

Opportunity cost is the best alternative use of a resource.

(The opportunity cost of an hour of your time is at least the value that you would

receive from an hour of work at a job, assuming that you can find one that fits your

schedule.)


An economic agent faces a trade-off when the agent needs to give up one thing to get something else.


A budget constraint shows the bundles of goods or services that a consumer can choose given her limited budget.

Q:

What does Elasticity measure?

State the different demand elasticities! 

A:

Elasticity measures the sensitivity of one economic variable to a change in another.


1. The price elasticity of demand

2. The cross-price elasticity of demand

3. The income elasticity of demand

Q:

What is the Law of Diminishing Returns?

A:

The Law of Diminishing Returns

states that successive increases

in inputs eventually lead to less

additional output.


Adding too many workers can actually decrease overall production

Mehr Karteikarten anzeigen
Q:

When are Externalities occurring?

A:

An externality occurs when there is a spillover from one person’s actions to a bystander. If left alone, people will generally not account for how their actions affect others—whether positive or negative.


The link among all three of these market failures is that there is a difference between social and private benefits or social and private costs, causing the individual to face different incentives than society faces.

Q:

What is the buyer's problem and what does it consist of?

What is meant by the budget set of a consumer?

What is meant by budget constraint?

A:

The first question that we explore is “How do consumers decide what to buy?” We can frame this question as a problem—the buyer’s problem.


Economists identify three essential ingredients of the buyer’s problem:

1. What you like

2. Prices of goods and services

3. How much money you have to spend


A budget set is the set of all possible bundles of goods and services that can be purchased with a consumer’s income.

Economists usually describe the budget set in the context of another concept—the budget constraint. The budget constraint represents the goods or activities that a consumer can choose that exactly exhaust her entire budget.

Q:

Define:

Positive and Normative Economics.

Normative Analysis and Public Policy.

A:

Positive Economics describe what people actually do.

Describing what has happened

or predicting what will happen is referred to as positive economics or positive economic analysis.


Normative Economics recommends what people, including society, ought to do.

Normative economics, the second of the two types of economic analysis, advises individuals and society on their choices. Normative economics is about what people ought to do. Normative economics is almost always dependent on subjective judgments, which means that normative analysis depends at least in part on personal feelings, tastes, or opinions. So whose subjective judgments do we try to use? Economists believe that the people being advised should determine the preferences to be used.


Normative Analysis and Public Policy.

Normative analysis also generates advice to society in general. For example, economists are often asked to evaluate public policies, like taxes or regulations. When public policies create winners and losers, citizens tend to have opposing views about the desirability of the government program. One person’s migratory bird sanctuary is another person’s mosquito-infested swamp. 


When a government policy creates winners and losers, economists need to make some ethical judgments to conduct normative analysis. Economists must make ethical judgments when evaluating policies that make one group worse off so another group can be made better off. Ethical judgments are usually unavoidable when economists think about government policies, because there are few policies that make everyone better off. Deciding whether the costs experienced by the losers are justified by the benefits experienced by the winners is partly an ethical judgment.

Q:

What is a Pecuniary Externality?

A:

A pecuniary externality occurs when a market transaction affects other people only through market prices.


Pecuniary externalities do not create market inefficiencies!

You could say that pecuniary externalities are necessary for efficient markets because as goods become more or less scarce, their price should change. Negative and positive externalities, such as pollution and education, cause market inefficiencies because goods are either over-or under-produced and consumed.

Q:

What is Cost-Benefit Analysis and how does it work?

What is Net benefit?

A:

Cost-benefit analysis is a calculation that identifies the best alternative, by summing benefits and subtracting costs, with both benefits and costs denominated in a common unit of measurement, like dollars.


Net benefit is the sum of the benefits of choosing an alternative minus the sum of the costs of choosing that alternative.

Q:

What is the Production Function?

A:

The relationship between the quantity of inputs used and the quantity of outputs produced is called the production function.

Q:

Define Equilibrium

A:

Economists think of the world as a large number of economic agents who are interacting and influencing one another’s efforts at optimization. Recall that equilibrium is the special situation in which everyone is optimizing, so nobody would benefit personally by changing his or her own behavior.


An important clarification needs to accompany this definition. When we say that nobody would benefit personally by changing his or her own behavior, we mean that nobody believes he or she would benefit from such a change. In equilibrium, all economic agents are making their best feasible choices, taking into account all of the information they have, including their beliefs about the behavior of others. We could rewrite the definition by saying that in equilibrium, nobody perceives that they will benefit from changing their own behavior.

Economics

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