Chapter 1 Flashcards
Economy comes from… (meaning)
the greek word “one who manages a household”
Define Scarcity
Condition that results from inability of limited resources to satisfy unlimited wants.
Examples of unlimited wants and limited resources?
wants - money, utilities, food, affection, entertainment, etc… / resources - land, capital, labor, and Entrepreneurship
Economic problems occur why…?
Human wants are greater than Resources needed
Choices depend on ___ we face. Everyone faces ___.
Incentives / Scarcity
Economics is the study of…?
choices that a society (individual, business, government, etc.) makes to attain its goals, given the scarce resources
What are the 3 fundamental questions of Economics?
1) What, and how much, to produce? 2) How to produce? 3) Who to produce for?
Economics is the study of…? (one word answer)
Choices
Who makes economic Decisions?
Consumers / Producers / Government
Economics is broken into two groups…
Microeconimcs and Macroeconomics
Define & give info on Microeconimcs
study of the economy at the small-scale level (individuals & specific markets) / How ind peeps & firms make choices - interact in the market & how GOV influence their choices
Define & give info on Macroeconomics
study of economy at large-scale level (total output, price level, & other total measures) / Includes economy as whole. Investigates national income, inflation, unemployment, interest rate, exchange rate, etc..
Examples of Microeconomics
Rent control on tenants / gasoline tax for automobile owners / A hurricane causing gas spikes across the country
Examples of Macroeconomics
Increase of FED min wage / FED tax revenues of a plan / North American Free Trade Agreement
Microeconomics focuses on how…?
GOVs , individuals, and businesses make decisions when faced with scarcity.
What are the 4 basic resources used to produce goods and services?
Natural Resources / Labor / Capital / An Entrepreneur
Whats Capital? (as in resources)
ummm… la curcharucha? (machianry)
What are 3 key economic ideas? (ways of thinking)
People r rational / People respond to economic incentive / Optimal decisions are made at the margin
What does “People are rational” mean?
Use all available info to achieve goals / Choose an action if profit > cost, decisions to maximize our pleasure
What does “People respond to economic incentive” mean?
GOV uses incentive to implement policy / Change in tax can change behavior
What does “Optimal decisions are made at the margin” mean?
Marginal analysis / Activities are continued up to MB=MC
Define Marginal Analysis
Examination of the effects of additions to or subtractions from a current situation
Define Marginal Benefit
additional benefit associated w/ one more unit of an activity.
Define Marginal Cost
additional cost associated w/ one more unit of an activity
Explain MB and MC
Basically if the benefit is greater than the cost (or risk) do it more, if not… don’t.
What are 3 fundamental constraints when making a decision?
Scarcity / Tradeoff / Opportunity Cost
Define Opportunity Cost.
highest-valued alt that must be given up to engage in an activity.
Examples of Opportunity Cost?
You work overtime, your leisure time that is sacrificed / You receive $400 for your bday. You buy a CD instead of purchasing lunches for a week. The OC of the CD is the lunches given up.
3 types of Economy?
Centrally planned / Market economy / Mixed economy
Define a Centrally Planned economy.
GOV decides how economic resources will be allocated
Define a Market economy
HH and firms interact in the market and allocate economic resources
Define a Mixed economy
Market works but GOV plays major roles
What’s are Positive Econimcs
Economic facts / Uses scientific method to uncover basic mechanism of da economy. It describes the way this world is. Might
be right or wrong
What are Negative Economics
Subjective perspective of the economy / Seeks to prescribe the way the world SHOULD BE
Economics is generally concerned with _____ economics.
Positive
Who made economics a social science?
Adam Smith
Question and Answer to Adam Smith’s question?
Why are some nations wealthy while others are poor? / division of labor and
free markets.
What are the Economic models used?
Tables, Graphs, & Math Equations
Define Production Possibilities Frontier.
Curve that shows MAX attainable combos of 2 outputs that may be produced w/ available resources & current tech
Define Efficiency & Tradeoff (under PPF)
E - achieving as much output as
possible from given amount of inputs/resources / T - producing more of 1 good/service means producing less of another good/service
Law of Increasing Opportunity Cost
In order to get more of something, one must give up ever-increasing quantities of
something else
Example of Increasing Law of Opportunity Cost?
To produce 1 more car the economy
must produce 5 fewer computers
Define Economic Growth
Ability of the economy to increase the production of goods and services.
What is the Circular Flow Diagram? (What’s in it?)
Households –> Factor Markets –> Firms –> Product Markets
