Chapter 1 and 2 Flashcards
(38 cards)
What does “economy” mean?
-Greek word- Oikos Nomos (household law)
-one who manages a household
What are the 3 basic questions of economics?
-What to produce
-How to produce
-For whom to produce
Must allocate resources (inputs, factors of production)
Used to produce goods and services
What are the 4 types of resources?
- Natural resources
- Capital
- Labor
- Entrepreneurial Ability
What are natural resources?
Natures creations
-Renewable- can draw on indefinitely if managed conversationally
-Nonrenewable- available in limited supply
Payment=Rent
What is capital?
Human creations
-something produced that is used to produce something else
Payment=Interest
What are the 2 types of capital?
Capital stock
-total amount of useful capital available
- Physical capital
-physical goods used to produce other goods
ex: machinery, tools, computers, equipment - Human capital
-skills and knowledge people acquire to increase productivity
ex: education, skills, and training
What is labor?
Human effort
the time people spend producing goods and services
Payment = wage
What is entrepreneurial ability?
-Imagination and skills to organize new products, services, processes
-Assuming risk of operations
Payment=profit
What is the fundamental economic problem?
Resources are scarce- not freely available (price>0)
Because goods and services are produced with scarce resources the goods and services are also scarce
unlimited wants vs limited resources
What is economics?
-science of scarcity
-study of how people use their scarce resources to satisfy their unlimited wants
without scarcity economics wouldn’t exist!!
What is scarcity?
when the amount people want is more than the amount available when P=$0
Must make ______
constantly making _____
choices, tradeoffs
What are the 4 types of decision makers?
- Households
-Consumers= demand good and services
-Resource Owners= supply resources - Firms
- Governments
-Firms and governments demand resources and produce goods and services - Rest of World
What are markets?
Where buyers and sellers carry out exchanges
In markets- determine prices and quantities of goods and services offered for sale
Markets provide the mechanism to convey info about the price, quantity, and quality of goods offered for sale
Choice requires _____ and ______
time and information
both are scarce and valuable
What do rational decision makers do
-willing to pay for info
-continue to acquire info as long as marginal benefits expected are greater than marginal cost
Economic analysis is _______ ________
Marginal analysis
Marginal= incremental, additional, extra
marginal benefit vs marginal cost
What is microeconomics?
-study of individual economic choices
-explains how prices and quantities are determined in individual markets
What is macroeconomics?
-study of the economy as a whole
-aggregated markets
ex. CPI, unemployment rate, inflation, economic growth
What are positive statements?
What is
-Can be supported/rejected based on facts/data
What are normative statements?
What should be
-value judgements, opinions
-cannot be tested
What is opportunity cost?
-value of next best alternative
-includes both money and non money aspects and it varies with circumstance
ex: Rita’s= $11 hr
Mini golf= $8 (2 hrs)
Total cost= $8 + 2($11)= $30
What is sunk cost?
-already been incurred (paid)
-cannot be recovered
*ignore sunk costs when making economic decisions
ex: you paid for a movie and its bad so you should leave
What is efficient production?
-max possible output, given existing resources and technology
