Test #1 Flashcards
(40 cards)
What is scarcity?
Unlimited want- limited resources. Scarcity is prevalent in economics and is constantly changing
What is Econ and why study it?
Study of how humans coordinate their wants and desires given the decision making mechanisms, social customs, and political realities of that society.
What is opportunity cost?
The value of the next best alternative. What you give up in producing one thing.
Three basic economic questions?
- What and how much to produce
- How to produce it
- For whom to produce it
What is positive economics?
Study of what is and how the economy works. Positive Econ is testable.
Ex.) how does the stock market work, consequences of rent control in housing market, costs of children related to family income.
What is normative economics?
The study of what the goals of the economy should be. Normative Econ is suggestive.
Ex.) people on welfare should work to get benefits, inherited wealth should be taxed more heavily.
What is microeconomics?
Study of individual choice and how it’s influenced by economic forces. Analyzes from parts to the whole.
Ex.) pricing policy of firms
What is macroeconomics?
The study of the economy as a whole.
Ex.) inflation, unemployment, business cycles, economic growth.
What is PPC?
Production possibility curve, measures maximum combination of outputs that can be achieved from a given number of inputs. Trade off among choices.
What is efficiency?
Achieving maximum output from a given input. Involves achieving a goal as cheaply as possible. A point on the curve.
What are the 5 resources/factors of production?
Labor, capital (human and physical), entrepreneurship, and land.
What is inefficiency?
Getting less outputs than input. Point within the ppc. Any point outside ppc is unattainable.
Principle of increasing marginal opportunity cost?
In order to get more of something, one must give up ever increasing quantities of something else.
Comparative advantage
Better suited for production of one good than another good.
Trade benefits whom?
Consumers. Specialization on trade allows countries to consume beyond their individual ppc.
Output problems?
Output opportunity cost other over- ooo
Larger number has absolute and comparative advantage
Input problems?
Input opportunity cost other under- iou
Smaller number has absolute and comparative advantage.
*time
Outsourcing?
Relocation of production once done in the US to foreign nations
Roles of government in a market?
Provide stable institutional framework: stable environment and enforce contracts through legal system
Promote effective and workable competition: protect against monopolies
Correct for externalities: externality- effect an action may have on a third party, positive or negative. Government has Ability to change rules so parties take into account the effect of their actions.
Ensure for economic stability and growth: prevent fluctuations, keep prices stable, and provide environment conductive to economic growth.
Provide for public goods: consumed by more than one individual- public parks
People pay taxes for goods
Adjust for undesirable market results: make market fairer, through taxes and expenditures, redistribute money to households. Ex.) tax types: progressive, regressive, or proportional.
Market economy?
Individuals follow self interest, goods distributed according to individuals ability, effort, or inheritance. Require private property rights which government defends.
Externalities?
Effect an action may have on a third party.
Ex.) positive- education
Negative- pollution
Capitalism
Ownership of means of production resides with a small group of people called capitalists
Socialism
Uses central planning to solve the what, how, and whom questions of economics. History shows this system, based off peoples good will, tends to break down.
What is demand
Amounts of a good that will be bought at various prices- curve
