Econ Ch 2 Flashcards
Voluntary vs Coerced Exchange
Value creating vs zero sum game
voluntary exchange - willing get together and make an exchange because you expect it to make both side better off - exchange that creates value
coerced - zero sum game - one person wins at the expense of someone else, transferring value, not exchanging
zero sum game
one person wins at the expense of someone else
coercion
someone will devote resources to make you worse off if you do not comply
How does trade create value
value of a good or service is subjective, voluntary trade creates value
- when individuals engage in voluntary exchange, both parties are made better off - get something you want more than what you are trading
- by channeling goods and resources to those who value them the most, trade increases the wealth created by a society’s resources, increases the resource’s value
how trade leads to economic growth
- games from specialization and division of labor
- focus on things we do best and then trade for the things we do not do so well - gains from mass production methods
- things become cheaper on average when they are produced in bulk - gains from innovation
- when we trade products, we also trade ideas
creation of wealth
- the process by which people become rich will make everybody richer, as long as its done through voluntary exchange
Transaction costs
the time, efforts, and other resources needed to search out and complete and exchange
- reduce voluntary exchanges
midddleman
a person who buys and sells good or services or arranges trades and reduces transaction costs
Importance of Property Rights
- the right to exclusive use of the property
- legal protection against invasion from other individuals
- the right to sell, transfer, exchange, or mortgage the property
4 incentives of property rights and what they do
keep a resources value for economic growth
- Incentive to use resources in ways that are considered beneficial to others
- private owners have an incentive to care for and manage what they own
- Private owners have an incentive to conserve for the future
- private owners have an incentive to make sure their property does not damage your property
what does lacking property rights lead to
lack of economic progress
Production and Possibilities Curve
PPC
outlines all possible combinations of total output that could be produced assuming a
1. fixed amount of productive resources
2. given amount of technical knowledge
3. full and efficient use of resources
- is bowed outward because of the concept of increasing opportunity costs
constant opportunity cost PPC
- gaining one thing but giving up one
- slop indicates the amount of one good that must be given up to produce more of the other good
increasing opportunity cost PPC
giving something up to make more of something, not constant
- bowed outward because of the concept of increasing opportunity costs
know efficient, inefficient, unattainable points, how much is produced at a certain point, what is given up when moving from one point to another
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