Econ Basics
What is the economy?
In a given area (usually a nation), an economy describes the production, distribution, and consumption of limited resources
An incentive is something that motivates a person to act in a certain way.
Name one incentive that has influenced you in a financial decision
Answers will vary. Class will decide if points are given
What are the 3 basic economic questions?
What goods and services should be produced?
How should these goods and services be produced?
Who gets these goods and services?
People often act in their own short term self interest. This leads to overuse or poor treatment of public resources, requiring regulation to ensure these resources persist.
This principle says that all resources are limited
Scarcity
What is trade and why is it beneficial?
Name 3 of the 6 goals of economies
Economic Freedom: allowing individuals to make their own economic decisions without government interference
Economic Efficiency: reducing waste while making sure most consumers are able to get what they want
Economic Equity: evenly distributing the wealth of a nation to make sure there is fairness in allocating resources
Economic Growth: improving the standard of living through innovation and economic growth
Economic Security: supporting and providing necessities for the poor or disadvantaged
Economic Stability: all necessities are consistently available for the public without uncertainty
Answers will vary, class will determine if points are given
Why is it true that "there aint no such thing as a free lunch"
because every choice requires tradeoffs.
What is a market
A place, real or virtual, where buyers and sellers are free to conduct trade.
Describe a tradtional economy
Custom, ritual, and tradition determines what is produced, how it’s made, and who consumes it
Work usually divided along gender lines
Often hunter-gatherer type societies
Often prioritize economic stability and security
Define Cognitive Bias
“A cognitive bias is a systematic error in thinking that occurs when people are processing and interpreting information in the world around them and affects the decisions and judgments that they make….Everyone exhibits cognitive bias.”
Define cost and benefits in terms of choices
Costs: what you spend when you make a choice (time, money, resources)
Benefits: what you gain when you make a choice (time, money, resources)
Adam Smith desribed the efficiency of markets as the "invisible hand' guiding buyers and sellers.
Describe a command economy
What is a command economy?
All economic decisions are made by the government, usually a dictator
Historically ruled by a king/queen, emperor, or dictator
Usually requires citizens to work certain jobs or build things that benefit the ruler or ruling class
Prioritizes economic stability
Socialist countries theoretically prioritize economic equity and security at the cost of economic freedom and growth
What is a sunk cost?
A sunk cost is cost that has already been incurred, and it should not affect future decisions made.
What is Thinking at the Margin
Considering the Marginal Benefit and Marginal Cost involved in making a decision.
Marginal Benefit: what you gain by adding one unit of something (example: time)
Marginal Cost: what you lose by adding one unit of something
How does regulation deal with the reality that future consequences matter
Producers only will consider short term profit motives unless they are regulated to bear the costs of long term consequences that may affect society at large.
Describe a free market economy
What is a market economy?
All economic decisions are made by individuals and businesses, with no government regulation
Adam Smith’s “invisible hand” describes how goods and services are efficiently allocated without a government overseeing distribution
Prioritizes economic freedom, growth, and efficiency at the cost of economic equity
How is FOMO a cognitive biaa
FOMO is considered a cognitive bias because it is a systematic pattern of thinking that deviates from logical and rational judgment. Instead of making decisions based on objective evidence, people experiencing FOMO are driven by social anxiety and the flawed assumption that others are having more rewarding experiences.