ENG 2001 Quiz 2 Flashcards
(31 cards)
Economics is whats?
Social science. Study of how humankind provides for its material well being, science of making optimal choices
Three fundamental questions
Which goods and services to produce?
How to produce?
How do we distribute output?
Economic costs
Accounting costs + opportunity costs
What is opportunity cost?
Cost of the next best alternative. The benefit you lose from choosing to engage in an activity by choosing the next best alternative.
Microeconomics deals with what
Individuals, firms, their choices, and how their choices respond to changes in prices, incentives and information.
Demand, supply, and markets at a fundamental level
What is macroeconomics
Deals with aggregate economy. How a large group such as governments or countries interact. Inflation, recession, econ growth, budget…
What is Demand
Willingness and ability to purchase commodity/product at given price and time.
Willingness without ability is just want.
Factors affecting demand
Preferences, price of related good, number of consumers, income, expected future prices
Elasticity (demand)
Higher elasticity refers to flatter demand curve, more elastic.
Factors of production
Land, labour, capital, entrepreneur
Marginal costs
The cost of producing the last unit. ex: tenth unit changes total cost from 100 to 115, then tenth unit cost is 15
Supply
Willingness and ability of individuals or firms to sell a product at a given price and time
Factors affecting supply
Technology, environment, price of inputs, price of related goods/services, number of firms, expected future prices
Market
Interaction between market demand and market supply determines market price
Monopolistic competition
Firms produce similar products which are differentiated in terms of characteristics, allowing firms to enjoy a limited degree of market power.
Firms can engage in non-price competitions, price discrimination
Oligopoly
Few large firms dominate the market, collude with eachother, non-price competition
Reasons for market failure
Public, merits and demerit goods, externalities(pos/neg)
Externalities
Spillover effects/side-effects, not accounted for in free market prices
Merit goods
Socially desirable, typically under produced and under consumed
Market power
Where marginal social costs and marginal social benefits coincide
Comparative advantage
Entity can produce something at a lower opportunity cost compared to others
Absolute advantage
Ability to produce more of a good using the same amount of inputs as others
GDP, GNP
GDP - total value of all final goods and services produced within geographical area of a country
GNP - Total value of all goods and services produced by citizens of the country
Ricardian trade model
2 country, 2 good model, focuses on comparative advantage which arises due to differences in tech or natural resources
