Basic Economic Concepts Flashcards
what we give up to obtain something that’s desired
opportunity cost
all the opportunities for spending within a budget
opportunity set
comparing the benefits and costs of choosing a little more or a little less of a good
marginal analysis
the first few units of any good tends to bring a higher level of utility to a person than consumption of later units
law of diminishing marginal utility
costs that were incurred in the
past and cannot be recovered
sunk costs ( should not affect current decision)
opportunity costs an economy faces in the production of two goods
production possibilities frontier (PPF)
points along the PPF curve
efficient point of production
points on the PPF curve, not along the curve
inefficient point of production
shifts in PPF curve comes from shifts in
available resources or technology
if one good is affected more than another on the PPF curve, a (blank blank) occurs
bias shift
as additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments will decline
law of diminishing returns
if a country currently produces a combination of two goods inside its production possibilities curve, the country can produce less/more of both goods with existing resources
more
produce all the goods we need/want to consume ourselves
economic self-sufficiency
produce one good and have a comparative advantage in the trade with others for what we want
specialization and trade
gains from trade
we can consume more while working the same amount
opportunity cost of one item
divide both items by the number of that one item produced in a day, oc= resulting cost of the alternate item being given up
comparative advantage determined by comparing the (blank blank) of each agent
opportunity cost
(blank blank) determines comparative advantage and thus specialization
opportunity cost
agent with lower opportunity cost in producing the good will have a (blank blank) in its production
comparative advantage
as long as opportunity costs (blank) between two agents, there will be room to gain from trade
differ
if one agent uses fewer resources to produce a good it has an (blank blank)
absolute advantage
Three elements of an economic system
production, resource allocation, exchange/distribution of goods and services
ownership and distribution of a good/service is determined by
property rights
four components of property rights
- right to use, 2. right to earn income, 3. right to transfer, 4. rights to enforce property rights
when the mix of goods being produced represents the mix that society most desires
allocative efficiency
all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set
budget constraint
statement which describes the world as it is
positive statement
statement which describes how the world should be
normative statement
an economic system with private ownership and planned (government) allocation is a
command capitalism system
an economic system with planned (government) ownership and private allocations is a
market socialism system
if ownership in an economic system is private, it’s a form of (blank)
capitalism
if ownership in an economic system is planned (government), it’s a form of
socialism
