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Name the Ten Principles of Economics!
A. How People Make Decisions
opportunity costs
whatever must be given up to obtain some item
The goal of each firm is to maximize profit. It chooses to produce the quantity of milk that makes profit as large as possible. How can the firm find its profit-maximizing quantity?
By comparing marginal revenue and marginal cost: As long as marginal revenue exceed marginal cost, increasing the quantity produced raises profit. If marginal revenue is less than marginal cost is should decrease production. If the firm thinks at the margin and makes incremental adjustments to the level of production, it will end up producing the profit-maximizing quantity.
rational people
people who systematically and purposefully do the best they can to achieve their objectives
market economy
an economy that allocates resources through the decentralized decisions of many firms and household as they interact in markets for goods and services
property rights
the ability of an individual to own and exercise control over scarce resources
Economics
the study of how society manages its scare resources
business cycle
fluctuations in economic activity, such as measured by the production of goods and services or the number of people employed
Scarcity
the limited nature of society's resources
Pie compare equality - efficiency
The question of efficiency concerns whether the pie is as big as possible, the question of equality concerns how the pie is sliced and how the portions are distributed among members.
productivity
the quantity of goods and services produced from each unit of labor input
The importance of property rights
in all cases markets fail to allocate resources efficiently because property rights are not well established: Some item of value does not have an owner with the legal authority to control it. The "goods" of clean air or national defence is valubale, but no one has the right to attach a price to it and profit from its use.
When in absence of property rights causes market failure, the government can potentially solve the problem:It can help to define property rights and thereby unleash market forces(eg pollution permits).As in the provision of national defense the solution is for the government to use tax revenue supply a good that the market fails to supply.
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