Chapter 1: Introducing the Economic Way of Thinking; Chapter 2: Production Possibilities, Opportunity Cost, and Economic Growth Flashcards
The condition in which human wants are forever greater than the available supply of time, goods, and resources. What is this?
Scarcity
What are resources (also called factors of production)?
Inputs used to produce goods and services
What are the 3 factors of production?
Land (natural resources), labor (human capital, entrepreneurship), and capital (constructed inputs such as factories, equipment, machinery, physical plants)
The money value of paper assets, such as stocks, bonds, or a deed to a house. What are these?
Financial capital
Is money capital?
No, but it can be used to purchase land, labor, or capital (all factors of production)
How society chooses to allocate its scarce resources to the production of goods and services. What is being described?
The definition of economics
What is the difference between macroeconomics and microeconomics?
Macroeconomics that studies decision making for the economy as a WHOLE; microeconomics studies decision making by a single INDIVIDUAL
A ___________ can be stated as a verbal argument, numerical table, graph, or mathematical equation. It is to forecast or predict.
Model
What are 3 steps economists use to solve a problem?
- Identify the problem; 2. Develop a model based on simplified assumptions; 3. Collect data, test the model, and formulate a conclusion
What Latin phrase is used when making a model, meaning that while certain variables change, “all other things remain unchanged”?
Ceteris paribus
What type of relationship validates an economic model?
Cause-and-effect relationship
Are correlations dependable over time?
No, they occur by chance and eventually disappear (i.e., The market crashes on the 2nd game of the World Series)
What type of economics addresses verifiable questions, ones that can be proven true or false?
Positive economics
What type of economics attempts to determine “what should be” and is subjective analysis based on value judgments?
Normative economics
Is scarcity and ever present and universal condition?
Yes
With economic graphs a ________ relationship occurs when two variables change in the same direction.
Direct
An ___________ relationship occurs when two variables are unrelated.
Independent
What is a person who combines the factors of production to produce innovative products?
An entrepreneur
Are renewable and nonrenewable natural resources an example of land resource?
Yes
What type of economics is represented by this statement? “If policy A is followed, then outcome B results”
Positive economics
Is there anything that can fully eliminate scarcity as an economic problem
Nothing realistically
True or false: Financial capital by itself is not productive; instead it is only a paper claim on economic capital
True
What are the three fundamental economic questions?
What to produce, how to produce, and for whom to produce
The best alternative sacrificed for a chosen alternative. What is this describing?
Opportunity cost
Marginal analysis means evaluating ________ changes from a current situation
Positive or negative
A _____________ shows the maximum combinations of two outputs that an economy can produce
Production possibilities curve (PPC)
What are the 3 basic assumptions of the PPC?
1.Fixed resources (an economy shifts any resource from the production of one output to the production of another output)
2. Fully employed resources (fully employed workforce and producing the greatest output possible without waste or management
3. Technology unchanged
What are the 3 basic assumptions of the PPC?
Fixed resources (an economy shifts any resource from the production of one output to the production of another output); fully employed resources; technology remains unchanged
What is another way of saying maximum output levels?
Efficient points
The opportunity cost increases as production of one output expands; what is being described?
The law of increasing opportunity costs
What causes increasing opportunity costs and the bowed-out shape of the PPC?
The lack of interchangeability between workers
What are two factors in an economy’s production capacity increasing and experiencing economic growth? (The PPC would shift outward)
The resource base increases (like more natural resources, a baby boom, or more factories), or technology advances
What will cause the PPC to shift inward?
A reduction in resources (factors of production)
