Principles of Econ Test Flashcards
Why is the PPF curved?
Not all things are created equal
Units are different
What can cause a shift in the PPF curve?
New technology
More factors of production
Could go down with lack of resources too
Fresh air
Free goods that a price cannot be attached
According to Smith, what is the result of competition?
The provision of those goods that society wants, in quantities that society desires, and the prices society is prepared to pay
Why do the butcher, brewer, or the baker provide us with dinner?
Out of self interest
Law of competition
Operate fairly with eachother
How does the market regulate itself?
Competition and self interest
Consequence of the market
self regulating
competition
Law of accumulation
Every financial achievement is an accumulation of hundreds of small efforts and sacrifices
Are supposed to reinvest into society
Traditional economy
Allocation of scarce resources and nearly all other economic activity stems from ritual, habit, or custom
Pros of traditional economy
everyone knows their role
“for whom” is answered
life is stable
Everyone know how to produce things
Cons of traditional economy
Discourages new ideas and new ways of doing things
Command economy
Central authority makes most of the what, how, and for whon decisions
people are expected to follow the rules of their leaders
Strengths of command economy
can change direction/focus quickly
central government can change allocation of resources to meet goals
not affected by inflation
surplus and unemployment are relatively low
Weaknesses of command economy
Does not meet the needs of the individual
Lack of incentitives
No flexibility for day-to-day problems
Mixed economy
People and firms act in their own best interest with some guidance from the government
Mix of private enterprise and the government control
Government works as a protector
Mixed economy strengths
Adjusts to changes over time
freedom for individuals
variety of goods and services
consumers are happy
Mixed economy weaknesses
Rewards are given to the most productive resources
People’s age and health could leave them behind if they cannot work
need competition
Market economy
People and firms act in their own interest to answer essential questions
allows buyers and sellers to come together to exchange goods and services
Weakness of the market economy
Instable
inequal
class struggle
Competitive market
One with many buyers and sellers, each has a negligible effect on price
Perfectly competitive market
All goods exactly the same
Buyers and sellers so numerous that no one person can control the market
Market demand
Sum of all the individual demands
Substitutes
An increase in the price of one causes an increase in demand for the other
Ex: hot dogs and hot dog buns
