Chapter 3 Flashcards
(29 cards)
What makes gold valuable is its
relative scarcity
Smith says we are wealthy if
we consume valuable stuff
In order to consume something of value,
we must create that value
Value is created
through production and through trade
The production process
turns inputs into consumable outputs
Consumable outputs
are goods and services
Natural Resources/land are
tangible, but not produced, and are priced with rent.
Labor is
the physical and mental talents applied to production. Priced by wage.
Capital is
the produced means of production. Priced by interest
Entrepreneurship is
risk taking/bearing and innovation. Priced by profit.
Middlemen are often said to be
ones who do not change the value of the product that the final consumer uses
Technology is
the way inputs are combined to produce output.
Karl Marx thought that technology caused
unemployment
The make work fallacy
is the idea that jobs are valuable, whether or not the labor’s production adds value
The production possibilities frontier (PPF) is
a simplified way of understanding the production tradeoffs that are made in an economy
The PPF Model assumes
only two goods are produced over some time period, there is a fixed amount of resources, and there is a given technology.
Applying the principle of optimal arrangement of two goods where resources are not all the same results in
the law of increasing opportunity cost.
The law of increasing opportunity costs states
that as more of a good is produced, the opportunity cost of producing a unit of that good rises
PPF only shows
possibilities, not preferences. it can’t tell us “what is best”
A market economy answers the question of how much to produce
through the spontaneous order of the market
Wealth is
about having valuable stuff
In a market economy
all choices are made based on value.
On the PPF, choices in blue (under the curve) are
attainable, but inefficient.
On the ppf, choices in green are
not yet attainable.
