Chapter 1 - Econ issues and concepts Flashcards
Economics def
Study of use of scarce resources to satisfy unlimited wants
Scare resources/scarcity def
Limited resources
Factors of production what they are + name them (3)
A society’s resources : Land, labour,capital
2 types of outpus
Goods (tangibles) or services (intangibles)
What is implied by scarcity
need for choice
Name of cost associated with each choice and how it is defined
opportunity cost : opp. cost of one commodity is amount of other commodities you could have instead
Margin/marginal cost/marginal benefit
margin : refers to the choices to come. marginal cost/benefit = cost and benefit related to the next decision
PPB graph meaning and things it illustrates and how
Production possibility boundary. scarcity choice and opportunity cost. scarcity = region above ppb slope. choice = region below ppb slope. opp. cost = ppb slope
calculation of opportunity cost
direct cost of activity (represents $ I could have instead) + what you gave up in order to do it (represents things I could have instead) - savings the activity generates
4 key economic problems
- What is produced and how ? 2. What is consumed and by whom ? 3. Why resources are sometimes idle ?
- Is productive capacity growing ?
Resource allocation def
Quantities of various goods that are produced (how resources are allocated = how they are used = qt of stuff they allow to do)
Microeconomics def
Study of allocation of resources as it is affected by the workings of the price system (how many done depending on price system)
What instance can influence all 4 economic problems and why
Government policy by its design and effectiveness
Market economy def.
Complex. Not coordinated. self organizing. self interested. Incentives. Specialized productive activities
efficiency def
organizing available resources to produce goods and services that 1) people value most 2) when they want them the most 3) By using the fewest possible ressources
2 things Institutions created by the state do
Protect private property and enforce contractual obligations
3 groups of decision makers
Consumers, Producers, Government
Who makes marginal decisions and what does that mean
Consumers and producers : decide if they will be made better off by buying or selling less of any given product
Circular flow of income and expenditure
Individuals (consumers) and firms producers. On goods market, ind. pay firms for goods and services in exchange of goods and services. In factor market (3 factors of production), indiv. sell their factor markets to firms in exchange of payment for factor services.
2 characteristics of production and who noted them
specialization and division of labour. Adam Smith
What is specialization
Allocation of different jobs to different people
What is self-sufficiency
One person does the job
Why specialization is better than self-sufficiency (2 reasons)
1) Comparative advantage (individual abilities differ)
2) Learning by doing (focusing on one activity leads to improvements
What is divison of labour
Extension of the idea of specialization for the production of a single good or service (travail à la chaîne)
Specialization must be accompagnied by what
Trade
What is barter
troc
How money eliminates cumbersome system of barter
seperates transactions involved in the exchange of products, so facilitates specialization and trade
what facilitated globalization
rapid reduction of transportation and communication costs in last half of 20th century
What economic attitude is to abandon if you want to take part in global economy as a country
isolationist economic stance (stance = attitude)
Three pure types of economic systems.
Traditional (marchés), Command, Free-market
what is a mixed economy. what economies are mixed
economy that combines significant elements of all 3 pure economic systems. all economies are mixed
what is a free-market economy (2 things)
1) prices and for goods and services are determined by laws and forces of supply/demand and 2) Free of government intervention, monopoly or other autority
Problem discussed by Karl Marx
free-market economies can’t be relied on to generate a just distribution of output
What Karl Marx supported
Centrally planned system (économie dirigée) ->benefits according to him
What did Marx’s ideas lead to
adoption of socialist/communist systems by many countries
Problem that socialist/communist countries had (noticed in end of 20th century)
Unability to provide their citizens the rising living standards that existed in the more free-market economies
What happened to communist/socialist countries in last 2 decades of 20th century
Most governments replaced their systems of central planning with much freer markets
What failure of centrally planned economies does not demonstrate and what it does demonstrate
DOES NOT demonstrate superiority of completely free-market economies.
DOES demonstrate superiority of mixed economies with large elements of free-market
What are the key government-provided institutions in market economies
Private property and freedom of contract
3 other things government intervene in in modern mixed economies
1) correct market failures (concurrence illégale)
2) Provide public goods
3) Offset the effect of externalities
Do markets work badly w/o gvt intervention
No. work well but sometimes gvt policy improves outcome for society as a whole
