Chapter 1 Flashcards
What are the basic economic questions?
- What/how much to produce
- How to produce
- For whom to produce
Scarcity
The Idea that resources are insufficient to satisfy all the needs and wants of humans
Choice
Since resources can be scarce, it means that not everyone can get everything. Therefore choices must be made between what to produce and what not to produce.
Resource Allocation
Refers to assigning available resources, or factors of production, to specific uses chosen among many possible alternatives.
Which economic questions does resource allocation answer?
What/how much to produce and how to produce
Distribution of Income
How much output different individuals or different groups in a population receive.
Which economic question does the distribution of income answer?
For whom to produce
Redistribution of Income
When the distribution of income changes so that different social groups now receive more or less income and output than they were previously.
Market Economy/Free Market
Resources are owned by private individuals or groups of individuals, and it is mainly consumers and firms who make economic decisions by responding to prices that are determined in markets.
Command Method/Planned
Resources are owned by the government, which makes economic decisions by commands.
Efficiency
The thought of producing the most product for capitol, without having any waste
Equity
is the idea of being fair or just
Sustainability
maintaining the ability of the environment to produce and satisfy needs and wants in the future
Recently, countries have been moving from a mixed economy to a ___ economy
mixed market
interdependance
economic decision-makers interact and depend on each other
Government Intervention
changes the allocation of resources from what markets would have achieved working on their own.
Mixed Economies
A combination of markets and commands.
Rationing
The method used to make resource allocation and output/income distribution decisions.
Recently, countries have been moving from a mixed economy to a ___ economy
mixed market
what are the factors of production?
Land, capitol, labor, entrepreneurship
What are the specified types of capitol
Financial capital, Human capital, Physical capital, Natural capital.
what is opportunity cost?
a value you have to give up in order to obtain something else
Positive economics
Economics based on something that is, was or will be.
Normative economics
Economics based on beliefs or value judgments. Keywords: should, good, bad, right, wrong.
Logic
Making a series of statements, each of which is true given that the previous statement is true.
Hypothesis
Educated guess that indicates a cause-effect relationship about an event.
Ceteris Paribus
All else equal
Empirical Evidence
Real-world information, observations and data that we acquire through our senses and experience.
Theory
A general explanation of a set of interrelated events, usually based on several hypotheses that have been tested successfully.
Law
Describes an event in a concise way, and is supposed to have universal validity.
what terms construct the inside of the circular flow of income chart?
revenue, household expenditure, household income, cost of production
what types of Production Possibilities Curves are there?
Either a constant marginal cost or an increasing marginal cost.
What is production possibilities?
all posible combinations of producing goods, attempting to maximize the outcome
where is the Production possibility located on a PPC curve in the real world?
Inside the curve(due to the fact that there might be unemployment, or lack of resources to produce said good, inefficiencies in production.
Economic growth
increase in output of an economy
how can Economic growth be demonstrated on a PPC, and how is it caused?
through the moving of the PPC curve in the positive or negative direction. caused by higher quality resources, new technologies, increases in quantity of resources. there can also be non parallel shifts
what terms construct the base of the Circular flow of income chart?
businesses, resources market(labor, resources), consumers, product market(goods and services)
what terms construct the outside of the circular flow of income chart?
(goods and services) , (land, labor, capitol, entrepreneurship)
Models
Used to illustrate theories and to describe connections between variables.
Refutation
The idea that it must be possible to disprove a hypothesis or theory by subjecting it to empirical testing.
Equity
Being fair or just (normative)
Equality
Being equal with respect to something (positive)
Adam Smith
“Father of economics” Thought that self-interested behavior without gov’t intervention led to a more efficient use of resources and increased output.
why is the circular flow of income chart inaccurate?
it doesn’t accommodate, for the government and other forms of leakages from the circular flow.
What are the leakages in the circular chart?
government taxes, imports, saving
What are the injections in the circular chart?
investments, exports, gov spending
laissez-faire
A free market where there is without any government interventions
Classical Economics
The economics ideas that developed during the 19th century
Utilititarianism
goods and services are only useful if they help people in the economic system
Marginal
extra or additional
Marginal Utility
theory of value that determines prices of goods and services.
Say’s Law
supply creates its own demand. The economy teands to words fill employment in absence of any government interventions
Karl Marx
German philosophers had a profound influence on the course of global events during the 20th century.
John Maynard Keynes
An extremely influential British economist, set forth an economic theory that entirely replaced the classical theory and Say’s Law.
Monetarism
emphasizes the role of money in the economy.
New Classical Economics
emphasizes the importance of individuals’ rational expectations of inflation and government policy actions.
Behavior Economics
A method of economic analysis that applies psychological insights into human behavior to explain economic decision-making.
Circular Economy
Goods should be produced in such a way that they can be repaired rather than thrown out
19th Century
Classical Economics, Utility, Marginal, Marginal Utility, Say’s Law, Laissez-Faire
what does the circular flow of income look like with injections and leakages?
through the financial market(saving-investing), government(taxes-gov spending), and other countries(spending on imports-spending on exports).
21st Century
Behavioral economics, Circular Economy
20th Century
John Maynard Keynes, monetarism, new classical economics, Macroeconomics policy
18th Century
Adam Smith, Laissez-Faire
1)actual growth vs. 2)growth in Production possibilities
1) Growth inside the PPC. caused by decrease in unemployment, and increase in efficiency. 2) new technologies, increased resource quality, increase in resource quantity.
Circular Flow of income model in a closed economy with no government
https://i.gyazo.com/8afda797b6da2885a66c53fe51f9040e.png
Circular Flow of income model with leakages and injections
https://i.gyazo.com/bcc1fdc7dfc40704970d088f854f96e6.png
