10 - Microeconomics Flashcards
This deck will explore fundamental economic concepts like scarcity, supply and demand, and opportunity cost, as well as understand market structures, specialization, factors of production, and the role of institutions and government.
Define:
scarcity
Refers to the limited availability of resources relative to unlimited wants and needs.
This limitation forces individuals and societies to make choices about how to allocate resources.
Define:
supply
- The quantity of a good or service that producers are willing and able to offer at various prices.
- As the price of a good increases, suppliers are generally willing to produce more.
Define:
demand
- The quantity of a good or service that consumers are willing and able to buy at various prices.
- As the price of a good decreases, consumers are generally willing to buy more.
Explain:
choice
Context of economics
- Because of scarcity, individuals and societies must make choices about how to allocate resources.
- Every choice involves trade-offs, meaning that to gain something, something else must be given up.
Define:
opportunity cost
Refers to what you have to give up to buy what you want in terms of other goods or services.
Example: if you choose to spend your evening watching a movie, the opportunity cost is the value of the other things you could have done with that time, like studying, spending time with friends, or working.
Identify:
3 main types of economic systems
- Command Economy
- Market Economy
- Traditional Economy
Explain:
command economy
- Economic system where a central authority, typically the government, controls the production and distribution of goods and services.
- This central authority makes decisions about what to produce, how much to produce, and who gets to consume the goods and services.
Examples: Soviet Union, Cuba, North Korea
Explain:
market economy
- Economic system where the production and distribution of goods and services are primarily determined by supply and demand in markets.
- In this system, economic decisions are made by individuals and businesses, rather than by a central authority.
Explain:
traditional economy
- Economic system where customs, traditions, and beliefs shape the production and distribution of goods and services.
- In this system, economic decisions are based on long-held cultural norms and practices, rather than on market forces or government intervention.
Examples: Indigenous communities in the Amazon rainforest, rural villages in Africa and Asia
Define:
market structures
Different types of competitive environments in which firms operate.
Identify:
4 types of market structures
- Perfect Competition
- Monopoly
- Oligopoly
- Monopolistic Competition
Describe:
perfect competition
- Many buyers and sellers, identical products, perfect information, easy entry and exit.
- Efficient allocation of resources, low prices for consumers.
- Firms have little control over price, potential for low profits.
Example: Agricultural markets (e.g., wheat, corn)
Describe:
monopoly
- Single seller, unique product, high barriers to entry.
- Potential for economies of scale, innovation.
- Higher prices, reduced consumer choice, potential for inefficiency.
Example: Public utilities (e.g., water, electricity)
Describe:
oligopoly
- Few sellers, differentiated or identical products, significant barriers to entry.
- Potential for innovation, economies of scale.
- Collusion, price fixing, reduced consumer choice.
Examples: Automobile industry, airline industry
Describe:
monopolistic competition
- Many sellers, differentiated products, low barriers to entry.
- Product differentiation, consumer choice.
- Inefficient allocation of resources, potential for advertising costs.
Examples: Restaurants, clothing stores
Define:
specialization
Process of focusing on a specific task or activity to increase efficiency and productivity.
Explain:
4 benefits of specialization
- Increased Efficiency: By focusing on a specific task, individuals and businesses can become more skilled and efficient.
- Higher Productivity: Allows for the division of labor, leading to increased output.
- Innovation: Encourages innovation as individuals can focus on developing new techniques and ideas.
- Economic Growth: Contributes to economic growth by increasing productivity and efficiency.
Explain:
4 costs of specialization
- Dependence: Can make individuals and economies dependent on specific skills or resources.
- Reduced Flexibility: Specializing in one area can limit opportunities in other areas.
- Increased Inequality: Can lead to income inequality if some individuals or regions specialize in low-paying industries.
- Social Costs: Overspecialization can lead to a loss of diversity and cultural heritage.
Define:
factors of production
- Fundamental resources used to produce goods and services.
- Building blocks of any economy.
Identify:
4 factors of production
- Land
- Labor
- Capital
- Entrepreneurship
Describe:
land
Within context of factor of production
- Natural Resources: includes all natural resources like fertile land, minerals, forests, water bodies, and climate conditions.
- Geographic Location: can influence its economic potential, especially for trade and resource extraction.
A nation rich in natural resources like oil, minerals, and fertile land has a significant advantage. However, scarcity of these resources can limit economic growth and development.
Describe:
labor
Within context of factor of production
- Human Capital: refers to the skills, knowledge, and abilities of workers. A well-educated and skilled workforce is crucial for a productive economy.
- Physical Labor: includes manual labor and physical effort required to produce goods and services.
A skilled workforce is essential for productivity and innovation. Countries that invest in education and training often have higher economic growth rates.
Describe:
capital
Within context of factor of production
- Physical Capital: refers to man-made goods used to produce other goods and services, such as machinery, tools, and buildings.
- Financial Capital: refers to money and other financial assets used to invest in businesses and other economic activities.
A well-developed infrastructure, including roads, bridges, and ports, is crucial for economic activity.
Describe:
entrepreneurship
Within context of factor of production
- Innovation: Entrepreneurs introduce new ideas, products, and services.
- Risk-Taking: They take risks by investing their time, money, and resources in new ventures.
- Decision-Making: Entrepreneurs make critical decisions about resource allocation, production, and marketing.
Explain:
How does economic growth impact economic decisions and outcomes in a country?
A country with abundant natural resources, a skilled workforce, and advanced technology is likely to experience higher economic growth.
Explain:
How does the auto industry demonstrate the factors of production?
- Land: Raw materials like iron ore, rubber, and oil are extracted from the earth.
- Labor: Workers assemble cars, engineers design them, and marketers promote them.
- Capital: Factories, assembly lines, and robotic equipment are used in the production process.
- Entrepreneurship: Henry Ford’s innovation of the assembly line revolutionized car manufacturing.
Explain:
How does the tech industry demonstrate the factors of production?
- Land: Silicon Valley, a region with a concentration of tech companies, benefits from its location and infrastructure.
- Labor: Software engineers, data scientists, and designers create innovative products.
- Capital: Computers, servers, and research facilities are essential for tech companies.
- Entrepreneurship: Bill Gates and Steve Jobs founded Microsoft and Apple, respectively, and revolutionized the tech industry.
Identify:
4 roles of institutions in economics
- Property Rights
- Contract Enforcement
- Regulatory Framework
- Social Norms and Culture
Explain:
property rights
Context of economics and institutions
- Institutions define and enforce property rights, which are essential for economic activity.
- Secure property rights encourage investment and innovation.
Explain:
contract enforcement
Context of economics and institutions
Strong institutions that enforce contracts facilitate economic transactions and reduce uncertainty.
Explain:
regulatory framework
Context of economics and institutions
Institutions can regulate markets to ensure fair competition, protect consumers, and address market failures.
Explain:
social norms and culture
Context of economics and institutions
- Informal institutions, such as social norms and cultural values, can significantly impact economic behavior and outcomes.
- This influence can be seen in work ethic, risk tolerance, trust-building, and cooperation.
Identify:
5 roles of government in terms of economic functions
- Providing public goods and services
- Redistributing income
- Stabilizing the economy
- Correcting market failures
- Promoting economic growth
Explain:
How does the government provide public goods and services?
Context of economics
- Infrastructure: Governments invest in infrastructure like roads, bridges, and public transportation, which are essential for economic activity.
- Education: Government-funded education improves human capital, leading to a more skilled workforce and economic growth.
- Healthcare: Public health programs can improve the overall health of the population, leading to increased productivity.
Explain:
How does the government redistribute income?
Context of economics
- Welfare Programs: Governments use taxes and transfer payments to redistribute income from the wealthy to the poor.
- Progressive Taxation: Progressive tax systems tax higher incomes at higher rates, reducing income inequality.
Explain:
How does the government stabilize the economy?
Context of economics
- Monetary Policy: Central banks use monetary policy tools like interest rates and open market operations to control inflation and promote economic growth.
- Fiscal Policy: Governments use fiscal policy, including government spending and taxation, to influence aggregate demand and stabilize the economy.
Explain:
How does the government correct market failures?
Context of economics
- Externalities: Governments can intervene to address negative externalities like pollution and positive externalities like education.
- Market Power: Antitrust laws can prevent monopolies and oligopolies from exploiting consumers.
Explain:
How does the government promote economic growth?
Context of economics
- Investment in Research and Development: Governments can fund research and development to promote innovation.
- Trade Policy: Governments can implement trade policies to encourage exports and attract foreign investment.
