Unit 1 Flashcards
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What does economics study?
How individuals, businesses, and governments allocate scarce resources to satisfy unlimited wants and needs.
What is microeconomics?
The study of decision-making by individual economic agents like households and firms.
What causes scarcity?
Limited resources versus unlimited wants.
What are the factors of production?
Land, labor, capital, and entrepreneurship.
What is opportunity cost?
The value of the next best alternative foregone when making a choice.
What is positive economics?
Objective statements and facts about the economy.
What is normative economics?
Subjective value judgments and opinions about what ought to happen.
Why does scarcity lead to choice?
Because resources are limited, individuals and societies must prioritize needs and make decisions.
What role do governments play in resource allocation?
Governments allocate resources through policies, regulations, and public goods.
What is the Production Possibilities Frontier (PPF)?
A graph showing maximum output combinations of two goods with given resources and technology.
What does a point along the PPF represent?
Efficient use of resources.
What does a point inside the PPF represent?
Inefficient use or unemployment of resources.
What does a point outside the PPF represent?
An unattainable production level with current resources and technology.
Why is the PPF typically concave?
Due to the law of increasing opportunity costs.
What causes the PPF to shift outward?
Economic growth, improvements in resources or technology.
What is marginal analysis?
Comparing additional benefits and costs to find the optimal choice.
What are sunk costs?
Costs already incurred that should not influence future decisions.
What are the four types of economic systems?
Traditional, command, market, and mixed economies.
What is a traditional economy?
An economy based on customs, traditions, and inheritance.
What is a command economy?
Central planners (usually government) make all economic decisions.
What is a market economy?
Supply and demand interactions determine prices and allocate resources.
What is a mixed economy?
Combines aspects of both command and market economies.
Why are property rights important?
They shape incentives and encourage resource use and investment.
