Econ 2020 Midterm 1 Flashcards
Define economics
The study of how any society best allocates it scarce economic resources among many, competing uses
Define productivity efficiency
full utilization of the scarce economic resouces
Define allocative efficiency
implies that the production combination is optimal from society’s point of view
Four categories of economic resources
land
labor
capital
entrepreneurship
Define scarcity
refers to the economic resources
What are the three fundamental economic questions
what goods/services get produced = individuals
how to produce = firms
for whom to produce = individuals with money
5 steps of the scientific method
identify the problem
make assumptions
develop a model
make a prediction
test the model
Define normative analysis
opinion ; can’t be tested
Define positive analysis
is the analysis of “what is” ; can be proven to be right / wrong
What does the Production Possibilities frontier represent
shows maximum production combinations of goods/services that a nation can produce given its resources and institutional constraints
What does it mean to be inside the PPF
something that is currently attainable but not using all resources efficiently
What does it mean to be outside the PPF
something that is attainable in the future by
- increase stock/qty of economic resources
- improve the quality of existing resources
- relax restraints (rules/regulation)
- TRADING
Define absolute advantage
one nation/state/firm is “better at producing” a good/service than another state/nation/firm
USING FEWER RESOUCES
Define Comparative Advantage
one nation/state/firm is “better at producing” a good/service than another nation/state/firm
HAVING LOWER OPPORTUNITY COST