Chapter 1 Terms Flashcards
Factors of production
Resource inputs used to produce goods and services, such as land, labor, capital, and entrepreneurship.
Capital
Final goods produced for use in the production of other goods, such as equipment and structures.
Entrepreneurship
The assembling of resources to produce new or improved products and technologies.
Economics
The study of how best to allocate scarce resources among competing uses.
Opportunity Cost
The most desired goods or services that are forgone to obtain something else.
Production Possibilities
The alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology.
Production Possibilities Curve (PPC)
Describes the various output combinations that could be produced in a given time period with available resources and technology.
Represents a menu of output choices an economy confronts.
Scarce resources
There is a limit to the amount of output we can produce in a given time period with available resources and technology.
Opportunity costs
We can obtain additional quantities of any particular good only by reducing the potential production of another good.
Efficiency
Maximum output of a good from the resources used in production
Squeezing maximum output out of available resources
Economic growth
An increase in output; an expansion of production possibilities.
Pushes PPC outward which means we have to create more jobs to stay on PPC.
-Eco. Growth is good because it allows us to produce more goods and raise living standards
Market Mechanism
The use of market prices and sales to signal desired outputs (or resource allocations)
- Adam smiths “invisible hand”
- doesn’t require direct contact between consumers and producers
- answers how, what, and for whom
- communication made by how much of a demand there is for the output “price signal”
Laissez Faire
The doctrine of “leave it alone”, of nonintervention by government in the market mechanism
-Adam smith: his view was price signals and responses of the marketplace were likely to do a better job of allocating resources than any government could.
Mixed economy
An economy that uses both market signals and government directives to allocate goods and resources.
- united states uses this to direct economic outcome
- uses both “invisible” and “visible” hands
Market failure
An imperfection in the market mechanism that prevents optimal outcomes.
- when market signals don’t give the best possible answers to what, how, and for whom we say the market mechanism has failed
- “invisible hand” has failed to achieve the best possible outcomes
Government failure
Government intervention that fails to improve economic outcomes.
-fails to improve or makes market outcomes worse
Macroeconomics
The study of aggregate economic behavior, of the economy as a whole.
- focuses on behavior of entire economy, the “big picture”
- how much money in total consumers will spend on goods and services
- depends on micro behavior
- worry about national goals as full employment, control of inflation, & economic growth, without worrying about the well being or behavior of individual groups.
- goal is to understand and improve the performance of the Economy as a whole.
Microeconomics
The study of individual behavior in the economy, of the components of the larger economy.
- concerned with details of the “big picture”
- focus on individuals, firms, and government agencies that actually compose the larger economy.
-interest in the behavior of individual economic actors
What are their goals? How can they achieve these goals with their limited resources? How will they respond to various incentives and opportunities?
- attention on purchases of specific goods and services, not in aggregated totals.
- how individual businesses make their investment decisions
- affected by macro outcomes
Ceteris paribus
The assumption of nothing else changing
-allows us to make straight forward predictions
-increases risk of error
Makes it easier to formulate economic theory and policy
- occasional failure is inevitable
- better to be approximately right than dead wrong
Fiscal policy
Government spending
Study of government pumping money in or out
Government gets its money from what? And what does it spend it on?
Taxes
School lunches, help other nations… And so on
Does a public good fit with the supply and the demand curve?
No, it has its own little thing going on for itself
Command economy
The government controls the entire market
Prices, how much is produced and so on.
Kind of like communist
Normative analysis
(What is normal)
Judgmental
What ought to be done
Judgmental
Markets are good and government is bad
