Ch 1-3 Flashcards
- a situation in which the amount of something available is insufficient to satisfy the desire for it
Scarcity
- what is given up when taking an action or making a choice
Opportunity Cost
- the dollars sacrificed, and actually paid out, for a choice
DEFN: Explicit Cost
- the value of something sacrificed when no direct payment is made
DEFN: implicit cost
What is the relationship between opportunity cost, explicit cost, and implicit cost?
opportunity cost = explicit cost + implicit cost
- the labor, land, capital, and entrepreneurship that are used to produce goods and services
DEFN: resources
- the time human beings spend producing goods and services
DEFN: labor
What are the (4) four economic resources?
- labor
- capital
- land
- entrepreneurship
- a long-lasting tool that is used to produce other goods
DEFN: capital
- physical stock like machinery, equipment, and factories;
- long-lasting things that help with the production of goods and services
DEFN: physical capital
- the skills and training of the labor force
human capital
- the total amount of capital in a nation that is productively useful at a particular point in time
DEFN: capital stock
- the physical space on which production takes place, as well as the nature resources that come with it
DEFN: land
- the ability and willingness to combine the other resources
DEFN: entrepreneurship
- anything, including a resource, used to produce a good or service
DEFN: inputs
- the study of the behavior of individual households, firms, and governments; analyzes individual parts of the economy rather than the whole
DEFN: microeconomics
-study of the behavior of the overall economy; looks at total economic output of an economy
DEFN: macroeconomics
- study of how an economy works; can be tested using facts
DEFN: positive economics
- the practice of recommending policies to solve economic problems
> goes beyond just facts
> requires a judgment be made by the individual making the statement and depends on individual’s values
** cannot be proved/disproved by facts alone
DEFN: normative economics
- an abstract representation of reality
DEFN: model
- any assumption that makes a model simpler without affecting any of its important conclusions
DEFN: simplifying assumptions
- assumptions that affect the conclusions of a model in an important way
> always one or more in an economic model
DEFN: critical assumptions
What does opportunity cost arise from?
- scarcity of resources
- to produce more of one thing, society must shift resources away from producing something else
A curve showing all combinations of two goods that can be produced with the resources and technology currently available
Defn: production possibilities frontier (PPF)
What is a point outside the PPF given current technology and resources at an economy’s disposal?
Unattainable
Where are societies choices limited to with regard to the PPF?
On or Inside the PPF
What does the Law of Increasing Opportunity Cost state?
The more of something produced, the greater the opportunity cost of producing even more of it.
What is the shape of the PPF? What causes that shape?
The shape is concave. It is caused by the Law of Increasing Opportunity Cost.
What is the ultimate cause (regarding resources) that explains the Law of Increasing Opportunity Cost?
Because most resources - by their nature - are better suited to some purposes than to others.
What can cause an economy to operate inside of the PPF?
Inefficient use of resources.
_________________ ________________ is when a firm, an industry, or an entire economy could produce more of at least one good without producing less of any other good.
Productive inefficiency
A slow down in overall economic activity.
Defn: recession
How is “technological change” depicted in economic terms?
The discovery of new ways to produce more from a given quantity of resources.
What are two (2) things that can cause economic growth?
- technological change
2. an increase in resources
What two (2) roles does Capital play in an economy?
- It is a resource used to produce goods and services
2. It is ITSELF a good and is produced using resources
In order to produce more goods and services in the future, one must shift resources __________ (toward/away) R&D and ________ ____________, and _________ (toward/away) from producing things one can use at the immediate moment.
- toward
- capital production
- away
Defn: The way an economy is organized.
economic systems
Can a society become economically self-sufficient?
No
What are two (2) features that every society’s economic system possesses?
- specialization
2. exchange
Defn: A method of production in which each person concentrates on a limited number of activities.
specialization
The act of trading with others to obtain what one desires is called _________.
exchange
Specialization and exchange enable individuals to enjoy greater ___________ and higher ________ ___________ than would otherwise be possible.
- production
- living standards
What are three (3) benefits of specialization in an economy?
- Development of expertise
- Minimizes production downtime
- Benefits from Comparative Advantage
The ability to produce a good or service at a lower opportunity cost than other producers.
Comparative Advantage
The ability to produce a good or service using fewer resources than other producers use.
Absolute Advantage
______ production of every good and service will be ________ when individuals specialize according to their _________ _____________.
- Total
- greatest
- comparative advantage
Economic systems solve what problem?
The problem of resource allocation.
An economy in which resources are allocated according to long-lived practices from the past.
Traditional Economy
An economic system in which resources are allocated according to explicit instructions from a central authority.
Command Economy
An economic system in which resources are allocated through individual decision making.
Market Economy
What are the three (3) types of economic systems?
- Traditional Economy
- Command Economy
- Market Economy
A group of buyers and sellers with the potential to trade with each other
Market
The amount of money that must be paid to a seller to obtain a good or service.
Price
Is price the same as cost?
No
Markets help to create a sensible ________ of ________.
Allocation of resources
An economic system in which most resources are owned by private citizens, who are free to sell or rent them to others as they wish is defined as?
Capitalism
An economic system in which most resources are owned by the state is called:
Socialism
How should an economy determine what good it should specialize in and what good it trade for?
Specialize in the good it has a comparative advantage in producing and trade for others.
What three (3) questions has to be answered in order to determine how resources are to be used?
- Which goods and services should be produced with society’s resources.
- How should they be produced?
- Who should get them?
How does the price of a good differ from its “cost”?
Cost means “opportunity cost” while price is a mechanism that confronts individuals with the costs of their decisions.
A market economy in which the government also plays an important role in allocating resources is called:
A mixed economy
_________ and __________ is an economic model that is designed to explain how prices are determined in certain types of markets.
Supply and Demand
What are two (2) types of ways a market can be characterized?
- Broad (macroeconomics)
2. Narrow (microeconomics)
The amount of a good or service that consumers are willing and able to purchase at a given price, all else held constant.
Quantity Demanded
As price rises quantity demanded will decrease. As a price falls the quantity demanded will increase.
This is called?
Law of Demand
The quantities that a good or service that consumers are willing and able to purchase at different prices, all else held constant.
Market Demand
The demand ________ is made up of each of the relationships between demand and price.
Curve
The demand ________ is represented by a point on the curve.
Schedule
What is represented by the slope of the demand curve?
Law of Demand
List the five (5) determinants of demand:
- Tastes
- Income
- Price of a Related Good
- Population
- Expected Future Price
The amount of a good or service that firms are willing to offer for sale at a given price, all else held constant.
Quantity Supplied
As prices of a good or service rise the quantity supplied will increase and vice versa, is called what?
Law of Supply
All the quantities of a good or service firms are willing to sell at different prices, all else held constant.
Market Supply
List the five (5) determinants of supply:
- Price of a Related Good
- Input Price
- Productive Capacity
- Estimated Future Price
- Technology
An excess of supply of a good or service.
Surplus
Not enough of a good or service available to meet the quantity demanded
Shortage
A market is said to be at equilibrium when there is what?
When Quantity Supplied = Quantity Demanded.
