Economics Flashcards
(51 cards)
Who is Adam Smith?
Founder of the field of economics.
1723-1790
Scottish
“Wealth of Nations” (1776) - Market Economy
Smith’s Views on Market Economy
Superior form of organization.
-Self-interest = dominant motivating force but self-interest = public interest
4 General viewpoints on workings of markets
- classical
- Keynesian
- Monetary
- Neoclassical
Definition of Economics
“The social science that examines how people choose to use limited or scarce resources to obtain maximum satisfaction of unlimited wants.”
Macroeconomics
Study of Economy as a whole
- Inflation - Unemployment - Economic Growth
Microeconomics
Study of individual parts that make up the economy
-Households
-Business firms
-Government agencies
Emphasizes how units make decisions and consequences of decisions
Scarcity
1) Which & how many goods and services a society should produce.
2) How it should produce those goods and services
3) How goods and services should be distributed.
2 Components of Scarcity
1) Good has to be limited
2) People have to want it.
Economic Growth in relation to scarcity
Produce more of the goods and services people want so they have an abundant supply.
More Resources, Better Resources, Better Technology
Improve the Use of Goods and Services
Society uses resources wisely = less scarcity
Reduce Wants
Society wants less .
Difficult long term.
4 E’s
1) Allocative Efficiency
2) Productive Efficiency
3) Full Employment
4) Equity
Allocative (Economic) Economy
Produces the types and quantities of goods and services that most satisfy people.
Limited resources + right mix of goods and services = Allocative Economy
Productive Economy
“Technical Efficiency”
Producing greatest quantity of goods and services possible at minimum cost. Not wasting resources.
- Not using more resources than necessary - Using resources where they are best suited. - Using technology to minimize cost
Equity
Wants Distribution of goods and services to be “fair”.
Equity =/= Equality
NO OBJECTIVE STANDARD
Standards of Equity
1) Contributory Standard
2) Needs Standard
3) Equality Standard
Contributory Standard
People are entitled to a share based on what the contribute.
More In = More Out
Needs Standard
Disbursed based on need.
Personal contribution is irrelevant
Equality Standard
Every Person is entitled to an equal share
Full Employment
Using all available resources (not just labor)
Produces more.
Production Possibilities Frontier Curve
Used to illustrate the problems associated with scarcity
-Maximum feasible combinations of 2 goods and services that society can produce
Assumptions: capable of only 2 goods
Fixed quantity of resources
Most productive manner.
Technical Efficiency
When more of one good cannot be produced without producing less of the other.
Traditional Economies
- Rely on tradition to determine production/distribution
- Not static
- Reticent to change and ill-equipped for sustained growth
- Poorer third world countries
Command Economies
-Rely on central authority (dictator or government) to make decisions
