Chap. 3 Flashcards
Production Process
Turns inputs into Consumable Outputs.
Consumable Outputs
Goods and Services.
What are the categories of Resources/ Inputs
> Natural Resources/ land- Tangible, but not produced by anyone.
Labor- Physical and Mental Talents, applied to production.
Capital- Produced means of production.
Entrepreneurship- Risk taking/ risk bearing and innovation.
Technology
Is the way inputs are combined to produce outputs.
Law Of Increasing Opportunity Cost
As more of one good is produced, the opportunity cost of producing a unit of that good rises, in terms of the other good which must be sacrificed.
Economic Growth
An expansion of the economy’s productive capabilities.
Human Capital
When individuals upgrade their labor by education and training.
Invisible Hand
The idea that those who are just trying to help themselves often help others more than when they are actually trying to help others.
(3) Income and Wealth Determinants
> Quantity of resources
Quality of resources
Freedom to use those resources.
What did Adam Smith say about the wealth of a country?
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T/F/E: To be wealthy, we must first put our efforts toward consumption?
(FALSE) Before we can consume, we must create value.
In what ways is value created?
Production of Trade.
The Production Process…?
Inputs to get outputs.
What are the characteristics of the resource called “Land”?
tangible, but not produced by anyone
What are the characteristics of the resource called “Labor”
physical and mental talents, applied to production
What are the characteristics of the resource called “Capital”
produced means of production
What are the characteristics of the resource called “Entrepreneurship”
risk taking/risk bearing and innovation
What are the prices of various resource categories?
> Natural Resources/land- Rent
Labor- Wage
Capital- Interest
Entrepreneurship- Profit
In the Economy, what does the price system do?
Connect info. about preferences and resource scarcity and provides incentives for working together.
In the Production Process, Who does Bastiat say are (NOT) Middlemen?
Bastiat says all are middlemen in the grand scheme of trade in the Economy.
What does Bastiat say will control grain profits? What will control costs?
Competition will bid profits down, it will also give incentive to keep costs low.
When new shipments of grain come to a country with varying degrees of famine, where does it go first?
To the place with the most need.
What does Bastiat predict about the cost of grain as government….
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What would make someone think that middlemen add value?
Because value is measured by willingness to pay, and if they added no value, no one would pay them.
T/F/E: Chickens around the world are equally productive, since the production process is the same everywhere?
(FALSE) : Chickens in the US produce 7 times more than chickens in developing countries.
What is make work Fallacy?
The idea that jobs are valuable, whether or not the labor’s production adds value
What are the 3 assumptions of the Production Possibilities Frontier model?
1) Only 2 goods are produced 2) using some fixed amount of resources 3) And a given technoology.
The PPF would be a straight line if?
All resources were equally productive.
What is the most likely shape of the PPF, Why?
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What principle is at the heart of Principle of Production Possibilities?
LAW OF OPTIMAL ARRANGEMENT (ch. 1)
Which point on the PPF is the best?
(There is no logical way to find the “best” point)The PPF only shows possibilities, to find the ‘best’ we would need to know preferences for the different outputs produced which the PPF (Does Not Tell Us).
How is the eventual point on the PPF chosen?
In {Market Economies} they are chosen in ‘Spontaneous Order’.
In {Authoritarian Economies} they are chosen by the Authoritarian decision makers or dictators.
How could an Economy have Health Care that is too good?
Many goods have value, when more of one is produced something else must be sacrificed.
Explain the Relevance of points beyond the points of PPF and inside the points of PPF
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What did Adam Smith mean when talking about Butchers, Bakers, and Brewers?
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What does Economic growth look like on the PPF? How does it occur?
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What does Adam Smith’s ‘Invisible Hand” do?
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The Incentive to Trade comes from what (3) Motivations?
People differ in tastes, people differ in abilities, and more highly populated markets give rise to better use of resources through specialization.
Production possibilities frontier (PPF) model
is a simplified way of understanding the production tradeoffs that are made in an economy
