Micro Unit 1 Flashcards
(32 cards)
Economics
The study of how “people” make choices
- “People” can be consumers, business owners, etc
- Econ is a relatively new science
- Aka “the dismal science” nc it takes out human emotion
Basic principals for accounting
- People have wants, and they are unlimited
- The resources that satisfy our wants are limited
- Scarcity forces people to make choices
- All choices involve opportunity cost
- People choose rationally
- When choosing, people weigh the costs and benefits of alternatives and then decide ( and they respond to incentives)
- Choices are made at the margins
Opportunity cost
The cost of the next best alternative given up
Micro vs macroeconomics
Micro- an individual or individual business
Macro- the whole economy
Micro could be just one product (Price of cars goes up is micro)
Positive vs normative economics
Positive- actual facts
Normative- opinions, often uses the words “should”
Every society must answer what three questions
- What goods and services should be produced?
- How should these goods and services be produced
- Who consumes these goods and services
- The way these are answered determines the economic systems
Economic system
The method used to produce allocate resources and distribution of goods and services within a society
Traditional economy
Trade and barter sytem
Socialism- Type of ownership and determinations of prices and products made
Public and market
Capitalism-Type of ownership and determinations of prices and products made
Private and market
Communism-Type of ownership and determinations of prices and products made
Public and command
Fascism-Type of ownership and determinations of prices and products made
Private and command
Mixed economy
Socialist and capitalism mixed
-All countries are mixed economy except North Korea
No specialization
Resources used for (EX black shoes) is just as good as brown shoes
Specialization
Resources are better used to make one thing than another
How do you know if the Production Possibilities curve is specialized
The graph is curved
-As we increase the production of a good, the opportuity cost of producing it increases (principal of increasing costs)
Shifters of the production possibilities curve
- Increase education (able to produce more of the products)
- PPC always shifts out because tech gets better and population increases
- If increase of one of the resources (ex increase guns =, which is on x axis), y-intercept will stay the same, x intercept will shift out
- EX virus kills people would shift it inwards
- Unemployment would make a point inside of the curve bc inefficent use of available resources (the workers are the resources)
- Bc they are trading, they can consume outside of their own PPC
Principal of comparative advantage
If two “people” specialize in what they are comparatively best at prodcuing and then trade with each other, they will consume more than they would if they did not trade
-You specialize in producing one product
Absolute advantage
Ability to produce something using fewer resources than another producer
Comparative advantage
Cost to produce a good at a lower opportunity cost than another producers
Utility
Amount of satisfaction consumer gets from buying a product
Marginal utility
Largest amount of money a consumer is willing to spend for a bundle of goods
Total utility
Largest sum of money a consumer is willing to spend for a bundle of goods
What is one of the 4 principals of individual choice
A. Resources are usually renewable
B. The real cost of something is impossible to measure
C. People take advantage of opportunities to make themselves better off only if there is no risk involved
D. Resources are scarce
E. The government redistributes income through progressive taxation
D