Chapter 1 - Economic issues and concepts Flashcards
3 types of resources
1) Land
2) Labour
3) capital
Why do people have to make choices?
Scarcity means we have limited resources but our wants are unlimited. To satisfy our wants we much choose from the limited options.
What is opportunity cost
Potential choices you could have made.
If you have $10 and you could either buy a big mac for $10, your opportunity cost is buying the salad.
What does the PPB tell us?
it tells us how much consumption goods can be produced and how much investment goods can be produced
What are consumption goods?
Food, clothing, furniture
What are investment goods?
Machinery, buildings, factories, trucks
What do the points on the PPB tell us?
These points show us all combinations of efficiently producing consumption goods and investment goods
What are 4 important facts about the PPB?
1) Points outside the curve are unattainable
2) Points inside the curve are inefficient
3) Points on the curve are efficient
4) If the curve is expanding, then growth capacity is increasing
What are the 3 types of decision makers in the economy
1) Consumers
2) producers
3) Government
What do consumers want to maximize?
Utility (benefits)
What do firms want to maximize?
Profits
What is marginal benefit?
That extra satisfaction you get from having that product
What is marginal cost?
How much you have to pay to get that extra product
How to producers make income?
They produce goods and sell them to consumers
How do consumers make income?
they sell their factor services to producers
What is specialization of labour?
Allocation of different jobs to different people based on their skills and proficiencies
Barter
trading one good for another good
Ex: I give you eggs and you make me a shirt
Why did people start to barter
Because when people started to specialize, they were really good at making a few things, so they traded to get the other things they wanted
Globalization
Increased importance of international trade
It reduces transport costs
Traditional economies
people inherited their positions
command economy
when most decisions are made by a central planning authority
free market economy
when decisions are made by everyone participating in the economy
