Chapter 1 -The Challenge of economics Flashcards
What is microeconomics?
Study of individual behavior in the economy
What does microeconomics focus on?
Individuals, Firms, and government agencies that make up the larger economy
What is macroeconomics?
Study of aggregate economic behavior
Give 3 examples of macroeconomics
National goals as a full employment, control of inflation, economic growth
What is the definition of economics?
Study of how best to allocate scarce resources among competing uses
What are the 3 questions of economics?
What to produce
How to produce
For whom to produce
What is the definition of scarcity
Lack of available resources to satisfy all desired uses of those resources
What is the central problem of economics?
Scarcity
Due to ______ we must make a choice, which leads to ______
Due to scarcity, we must make a choice, which leads to opportunity cost
What is opportunity cost?
The most desired goods and services that are foregone in order to obtain something else
What is the definition of the factors of production? (DONT list them)
Resource inputs used to produce goods and services
What are the 4 factors of production? (LIST THEM)
Land
Labor
Capital
Entrepreneurship
Why do we have to decide WHAT to produce??
There aren’t enough resources to produce ALL goods and services desired by society
Explain the graph of the production possibilities curve
Downward slope. Y axis = output of good 1
X axis = output of good 2
What does the production possibilities curve predict??
The alternative combination of goods and services that can be produced given the quantity and quality of the faactors of production
What does it mean when we’re producing along the curve on the production possibilities curve??
We’re using ALL available resources
Name 3 ways the economic pie can be distributed and name the economic question this answers
- Distribution based on production contribution
- Distribution based on need
- Combination of production and need
Why can distribution based on need cause a problem?
This may lower the incentive to work causing less work effort/incentive. There is less output to distribute
Many basic economic choices are made through the____________
Political process
What are the 3 mechanisms of choices?
- The market mechanism
- Central Planning
- Mixed Economics (mix of both)
What is the market mechanism?
Using market prices and sales to signal desired outputs. Market sales/prices send a signal to producers on what mix of outputs customers want
What is central planning?
The government decides what goods are produced, the prices they’re sold at, and who gets them
Most nations today use which mechanism of choices?
Mixed economics
Using the market mechanism could result in ________
Market failure - imperfection in the market mechanism that prevents optimal outcomes
Sometimes when the market fails, the government intervenes. This could result in ______
government failure. government intervention that fails to improve economic outcomes. could worsen the mix of output
