WEEK 2 Flashcards
(29 cards)
What are the 3 basic economic questions?
- what gets produced?
- how is it produced?
- who gets the product?
primary resources
land, labor, capital, infrastructure
capital
things that are produced and then used in the production of g/s
factors of production
inputs into process of production
resources/inputs
anything provided by
- nature
- previous generations
that can be used (in)directly to satisfy human wants
theory of comparative advantage
Ricardo’s theory that specialisation and free trade will benefit all trading parties, even those that may be absolutely more efficient producers
absolute advantage
- condition where a producer can produce and product using fewer resources
- lower absolute cost per unit
comparative advantage
condition where a producer can produce a product at a lower opportunity cost
outputs
g/s of value to a household
consumer goods
goods produced for present consumption
investment
process of using resources to produce new capital
PPF
- What are the significant points on this graph?
graph that shows all cominations of g/s that can be produced if resources are used efficiently
- A: feasible but inefficient
- B: feasible and efficient
- C: feasible, efficient, specialised
- D: not feasible
law of increasing opportunity cost
- as you increase the production of one good, the opportunity cost to produce an additional good will increase
- this is when the slope of the PPF changes
economic growth
- when does this occur?
- how is this seen usually on a PPF?
increase in total output in an economy
- occurs when a society acquires new resources or increases efficiency
- usually a one-sided shift on the PPF (non-parallel)
Why does the gap between rich and poor countries increase over time?
wealthy countries find it easier to devote resources to capital production than poor countries which leads to a faster rate of economic growth
command economy
economy in which a central government (in)directly sets:
- output targets
- incomes
- prices
laissez-faire economy
economy in which individuals and firms pursue self-interest without direction or regulation
market
institution through which buyers and sellers interact and engage in exchage
consumer sovereignty
consumers ultimately dictate what will be produced by choosing what to purchase
free enterprise
freedom of individuals to start and operate private businesses in search of profit
distribution of output
amount that any household gets depending on its income and wealth
price theory
price of any g/s depends on supply and demand
externality
actions of one party impose a cost or benefit on a second party
