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Econ 101 > Chapter 1 > Flashcards

Chapter 1 Flashcards

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1
Q

General equilibrium

A

Analysis of all markets simultaneously.

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2
Q

Five Factors of Production

A
  1. Capital - Plant, Equip, Inventory, Residential Constant (PIER)
  2. Land - natural resource, natural capital
  3. Labour - human resource, human capital
  4. Technology - change in the productive process
  5. Entrepreneurship - innovation, invention
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3
Q

Scarcity

A

Scarcity implies the need for choice, and choice implies the existent of cost.

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4
Q

Opportunity Cost (OC)

A

The value of the next best alternative that is foregone when one alternative is chosen. Every time a choice os made, opportunity costs are incurred.

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5
Q

4 elements of Opportunity Cost

A
  1. Value - subjective, benefit
  2. Next-best - what you could have chosen
  3. Foregone - what you give up
  4. Alternative - choice
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6
Q

Production possibility curve/boundary/frontier

A

Shows all possible combinations of production, if all inputs are fully and efficiently employed.

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7
Q

Marginal rate of transformation (MRT)

A

The slope of change in opportunity cost. (Curved PPC)

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8
Q

Efficiency

A

The resources available being organized to produce various goods and services that people want to buy with the least possible amount of resources. EFFICIENCY IS BETTER THAN INEFFICIENCY

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9
Q

Law of Increasing Marginal Opportunity Cost

A

OC increases of X as production of X increases, as to increase production of X, one must give up ever increasing amounts of Y.

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10
Q

Incentives

A

Are subjective and driven by self-interest. People respond to incentives when making decisions about what to buy or sell at what prices. Provides motive for actions taken by individuals

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11
Q

3 decision makers

A
  1. Consumers
  2. Producers
  3. Government
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12
Q

Maximizing

A

Individuals prefer happiness over unhappiness

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13
Q

Why is PPC concave?

A

High comparative advantage inputs used first. (Eff first, most inefficient switched out first)

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14
Q

Society equates MC=MB

A

Marginal Cost = Marginal Benefit

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15
Q

Self-organizing economy

A

Free market: Individuals consumers and producers act independently to pursue their own self-interest, and the collective outcome is coordinated (spontaneous economic order) MARKET AUTOMATICALLY COORDINATES

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16
Q

Adam Smith

A

Founder of free market idea, developed the idea of the invisible hand and how individuals act in self-interest.

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17
Q

What are markets governed by?

A

“Rules of the Game”, Rule of Law, property rights, Freedom of Contract, Institutions, manners, customs, conventions

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18
Q

Marginal Decisions

A

Making decisions at the margin, to buy or sell one more unit. You weight costs and benefits at the margin (MC=MB)

19
Q

Marginal Cost

A

The actual price of a product

20
Q

Marginal benefit

A

Extra satisfaction received

21
Q

When extra benefits exceed extra costs

A

Take action!

22
Q

Factor markets

A

Where individuals sell the services of the factor that they own in what are collectively called factor markets

23
Q

Good markets

A

Producers sell their outputs of goods and services in goods markets

24
Q

Distribution of income

A

How the nation’s total income is distributed among utilities

25
Q

Specialization of labour

A

The specialization of individual workers in production of one product, as this is efficient, as specialization allows individuals to do what they do relatively well and quickly. Economy’s total production is then greater *COMPARATIVE ADVANTAGE

26
Q

Division of labour

A

The breaking up of a production process into a series of specialized tasks, each done by a different worker. This increases efficiency. (Ex. production lines)

27
Q

Money and trade

A

Money facilitates specialization and trade (originally stemmed from self-sufficiency)

28
Q

What does the specialization of labour require?

A

Requires trades and markets

29
Q

Comparative advantage

A

Individual specialization advantage which leads to goods.

30
Q

Absolute advantange

A

Advantage to those who produce the most

31
Q

Globalization

A

Caused by advancements in transportation and communication. Leads to globalization of demand (markets) and supply (transnational corporations)

32
Q

Traditional economy

A

Behaviour is based on customs and traditions

- beneficial in unchanging environment

33
Q

Command economy

A

An economy where most economic decisions are made by central planning authority
- requires forecasting future trends

34
Q

Free market

A

An economy in which most economic decisions are made by private households and firms.

  • Basic economic decisions are decentralized (not by gov’t)
  • Price system coordinates with buyers and sellers
35
Q

Mixed economy

A

Some economic decisions are made by firms/households and some are by gov’t (private and public sectors)

36
Q

Market failures

A

Situations in which free markets don’t work well, leads to gov’t intervention

37
Q

Gov’t in mixed economy

A

Sometimes, government can improved on market outcomes

38
Q

Positive statement

A

A statement about what actually is, was, or will be (facts)

  • not based on a value/judgement
  • matter-of-fact statement
  • testable with evidence
39
Q

Normative statement

A

A statement about what ought to be (what should be done)

  • Based on value judgements
  • Tells others what they should do
  • not testable
40
Q

Why do economists disagree?

A

Big egos, failure to define terms/establish argument, different values/normative views, short vs. long run perspective

41
Q

Law of Large Numbers

A

Random of movements of individuals offset one another

- Group behaviour is often easier to predict than individual behaviour

42
Q

Variable

A

Any defined item that can take on various specific values

43
Q

Endogenous variable

A

Induced/dependent variable (value determined IN theory)

44
Q

Exogenous variable

A

Autonomous/independent

  • Influences endogenous variable
  • Determined OUTside the theory

Econ 101 (2 decks)

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