[MICRO] 01 - Introduction & The Economic Problem Flashcards
(52 cards)
Definition: Microeconomics
Microeconomics studies economics of the individual and tries to apply it to the general public/a larger set of people
Definition: Macroeconomics
Macroeconomics studies the actors in an economy (households, firms and the government)
3 Basic Questions to understand an economic system
1) What gets produced?
2) How is it produced?
3) Who gets what is produced?
Definition: Capital
Things that are themselves produced and that are then used in the production of other goods and services
Definition: Factors of Productio
The inputs into the process of production: Land, Labour Capital
Definition: Production
The process that transforms scarce resources into useful goods and services
Definition: Inputs or Resources
Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants
Definition: Outputs
The result of production: usable products but not necessarily a final consumption good
Definition: Opportunity Cost
The best alternative that we give up, when we make a choice or decision
Definition: Absolute Advantage
A producer has absolute advantage over another in the production of a good or service if it can produce that product using fewer resources.
Definition: Comparative Advantage
A producer has a comparative advantage over another in the production of a good or service if it can produce that product at a lower opportunity cost.
Definition: Consumer Goods
Goods produced for present consumption (within 1 year)
Definition: Investment
The process of using resources to produce new capital
Definition: Production Possibility Frontier (PPF)
A graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently
Definition: Command Economy
Every question is answered by the government in this type of economy
Definition: Free Market Economy
Free markets are opposite to command economies, a free market economy (laissez-faire) allows actors to do as they please with complete lack of government interference in the economy.
Definition: Mixed Systems
More realistic as there are no pure systems. Government involvement is limited to some government enterprises, taxes, social welfare expenditures, whilst a large private sector still exists.
Definition: Households
The consuming units in an economy
Markets of a closed, laissez faire economy (4)
1) Goods and services Market
2) Labor Market
3) Capital Market
4) Land Market
- Factors of production (also called factors market)
Definition: Goods and Services Market
Market in which final and intermediate goods are transacted.
Definition: Labour Market
The factor market in which households supply work for wages to firms that demand labour
Definition: Capital Market
The factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.
Definition: Land Market
The factor market in which households supply land or other real property in exchange for rent.
Definition: Quantity Demanded
The number of units of a product that a household would buy in a given period if it could bjuy all it wanted at the current market price.
