Chapter 1 Flashcards
Microeconomics
Individual
The part of economics concerned with:
-decision making by individual units such as household, a firm, or an industry
individual markets, specific goods and services, and product and resource prices
Macroeconomics
Economy as whole
The part of economics concerned with:
-performance and behavior of economy as a whole
-Focuses on
-economic growth
-business cycle
-interest rates
-inflation
-behavior of major economic aggregates such as household, business and government sectors
Aggregate
a collection of specific economic unites treated as if they were one unit
Positive economics
focuses on facts and cause and effect relationship. FACTUAL NO FEELINGS
Normative economics
Incorporates value judgements what the economy should be like or what policy actions should be recommended.
“ought or “should” statements
economizing problem
The choices necessitated because society’s economic wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce)
scarcity
The limits placed on the amounts and types of goods and services available for consumption as the result of there being only limited economic resources from which to produce output
utility
the satisfaction or pleasure a consumer obtains from the consumption of a good or service
marginal analysis
the comparison of marginal (extra) benefits and marginal costs, usually for decision making
economic principle
a statement about economic behavior or the economy that enables prediction of the probable effects of certain actions.
-generalizations
-ceteris paribus: other things equal assumptions (the assumptions that factors other than those being considered do not change)
We can clarify the economizing problem by visualizing _____
budget line: curve that shows various combination of two product a consumer can purchase with a specific income
income/price of item = quantity
What items are attainable on the budget line
all combinations of movies and book on or inside the budget line
Opportunity cost
Example: to obtain the first movie, you trade off 2 books. So the opportunity cost of the first movie is 2 books.
Income and how if affects the budget line
An increase in income shift the budget line to the right; a decrease in money income short it to the left.
Economic resource
the land, labor, capital, and entrepreneurial ability that are used to produce goods and services.
Economic resource: land
includes all natural resources used in the production process: forests mineral and oil deposits, water resources, wine powe , sunlight, and arable land
Economic resource: labor
resource consist of physical actions and mental activities that people contribute to the production of goods and services
economic resource: capital goods
Man-made physical objects (factories, roads) and intangible ideas (the recipe for cement) that do not directly satisfy human wants but which help to produce goods and services that do satisfy human wants
consumer good
Products and services that satisfy human wants directly.
economic resource: entrepreneurial ability
The human resource that combines the other economic resources of land, labor, and capital to produce new products or make innovations in the production of existing products; provided by entrepreneurs
Entrepreneurs
provides entrepreneurial ability to firms by
-setting strategy
-advancing innovations
-bearing financial risk
Because land, labor, capital, and entrepreneurial ability are combined to produce goods and services they are called _______
factors of production (inputs)
Production Possibility Curve
Pizza and Robots: A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed
attainable: points on or in curve (if in curve it represents unemployment or failure to achieve full employment)
unattainable: points outside of curve
-a comparison of mb and mc costs is needed to determine the best or optimal output mix on a production possibilities curve
Why does the production possibility curve bow out from the origin?
it reflects the law of increasing opportunity costs: results from that fact that economic resources are not completely adaptable to alternative uses.
How do you get the marginal opportunity cost on production possibility curve?
subtract last unit
How do you get the total opportunity cost on the production possibility curve?
look at where the two item meet on the line
Marginal benefit vs marginal cost
-Any economic activity should be expanded as long as marginal benefits exceeds marginal costs
-the optimal amount of activity occurs where MB=MC
Marginal benefit vs marginal cost
-Any economic activity should be expanded as long as marginal benefits exceeds marginal costs
-the optimal amount of activity occurs where MB=MC
Rational self interest
People allocate their time, energy, and money to maximize their satisfaction. Because they weigh costs and benefits, their economic decisions are purposeful, rational, and not random or chaotic
Rational self interest
People allocate their time, energy, and money to maximize their satisfaction. Because they weigh costs and benefits, their economic decisions are purposeful, rational, and not random or chaotic
Increase in resource supplies shifts the production possibility curve where?
outward and to the right
(economic growth): An outward shift in the production possibilities curve that results from an
1. increase in resource supplies
2. or quality
3. or an improvement in technology
Internalization specialization and trade enables what
obtain more goods than its production possibilities curve indicates
economic perspective
includes three elements
-scarcity and chose
-purposeful behavior
-marginal analysis
What does every point on the budget line represent
all combinations of goods that can be purchased with a given income
