Chapter 1-2 Flashcards
What are the Ten economic principles?
People face tradeoffs, the cost of something is what you give up to get it, rational people think at the margin, people respond to incentives, trade can make everyone better off, markets are usually a good way to organize economic activity, government can sometimes improve market outcomes, A country’s standard of living depends on country production, prices rice when government prints too much money, and society faces a short-run trade-off between inflation and unemployment
What is the difference between microeconomics and macroeconomics
the scale, micro focuses on firms, macro focuses on nations and economy-wide phenomena
What is the goal of economics?
To satisfy the most demand with the given resources.
Why is there scarcity?
There is unlimited wants and desires but limited recourses
What are the factors of production (resources)? Create a list of them.
Anything that can be employed to produce goods and services.
Free gifts of nature, human capital, physical capital, entrepreneur ability, and knowledge
What does a production possibility curve/frontier represent
The production possibilities given two options for production
_______:the loss of potential gain from other alternatives when one alternative is chosen
opportunity cost
What are the two ways that you can model your economy to meet societal demands
Economic self-sufficiency, and economic interdependence
what is absolute advantage
when comparing production between two firms/nations, it means that the firm with absolute advantage can produce possible products with better efficiency
How do you determine between two nations wanting to participate in free trade what product they should produce
produce what you have a comparative advantage in, whichever product has the lower opportunity cost you should produce
Supply slopes _____ and demand slopes _____
upward, and downward
The ________ says that as the price of an item goes up, ______ will attempt to maximize their profits by increasing the number of items for sale
law of supply, suppliers
The ________ states that the quantity purchased varies inversely with price. In other words, the higher the price, the lower the quantity ________.
law of demand, demanded
What are the shifters of supply?
Input prices, Technology, Expectations, and Number of sellers
What would cause a movement along the supply curve?
The change in the price of the good itself
What is equilibrium?
Equilibrium is when supply and demand intersect
On a supply and demand graph, what would need to be drawn and labeled for a shift in supply?
Horizontal axis is Q, Vertical axis is P
S for supply and Q for quantity
label the intersection and Qe and Pe
label S1 and Qe1 and Pe1
What causes a shift in demand?
Income, Price of related goods, Tastes, and Expectations
What causes a shift in the PPC?
Technological advancement
What makes two goods compliments?
When they are often consumed together, for example, ketchup and hamburgers, if the price of one of these goods was to go up the demand of the other would be effected
If a market decides to make a movement along the production possibilities curve from manufacturing rockets to manufacturing bikes why might the cost per bike increase the more bikes you decide to manufacture?
What is the terminology used to describe this?
Rocket scientists (specialized factor of production for manufacturing rockets) will not have the expertise for manufacturing bikes
The law of increasing opportunity cost, resources are not equally suited for producing different products
________ numerous buyers and sellers, prices cannot be manipulated and monopolies cannot be formed
perfect market
What does a circular flow diagram show?
that households are sellers of the factors of production and firms are the buyers
households are the buyers of products and firms are the sellers
The term used to describe the increase in operation size decreasing the per unit cost of production
economy of scale
Benefits of trade?
more variety for consumers, greater number of goods
