Econ Final Flashcards
1
Q
Tradeoff
A
- all possible things you could do instead
2
Q
Opportunity Cost
A
- Best alternative/ second choice
3
Q
Thinking at the margin
A
- deciding to do more or less of something
4
Q
Underutilization
A
- not all resources used
5
Q
Growth
A
- 2 ways
- Technology
- More resources
6
Q
Law of Increasing Cost
A
- gets harder to make things when you try to increase production
7
Q
Frontier/ PPF
A
- shows maximum output
8
Q
Purpose of Production Possibilities Graph
A
- Demonstrates tradeoffs
9
Q
Guns vs. Butter
A
- Fundamental tradeoff between military and consumer goods
10
Q
Economics
A
- the study of how people seek to satisfy their needs and wants by making choices
11
Q
Scarcity
A
- when there are limited quantities of resources to meet unlimited needs or desires
12
Q
Shortages
A
- when producers will not or cannot offer goods or services at current prices
13
Q
Factors of Production
A
- Land
- Labor
- Capital
14
Q
Land
A
- all natural resources that are used to produce goods and services
15
Q
Labor
A
- any effort a person devotes to a task for which that person is paid
16
Q
Capital
A
- any human-made resources that is used to create other goods and services
17
Q
Two Types of Capital
A
- Physical Capital
- Human Capital
18
Q
Physical Capital
A
- all human made goods that are used to produce other goods and services
19
Q
Human Capital
A
- the skills and knowledge gained by a worker through education and experience
20
Q
3 Fundamental Questions (who?)
A
- Adam Smith
- What to produce?
- How to produce?
- Who consumes it?
21
Q
Free Market
A
- Produce that the consumer wants, produced in whichever way the consumer likes best
22
Q
Theory of the invisible hand (who?)
A
- Adam Smith
- the idea that markets regulate themselves
23
Q
How do markets regulate themselves?
A
- People are self interested (motivating force)
- Competition forces businesses to have lower prices and good products (regulating force)
24
Q
Lasse Faire
A
- government stay out
25
Economic Goals (Free Markets)
- Freedom
- Growth
- Innovation
- Equity
- Security
26
Free Market Strenghts
- Good at Freedom
- Good at Innovation
- Good at growth
(no pure free market exists)
27
Free Market Weaknesses
- Bad at security
- Bad at equity
(no pure free market exists)
28
Mixed Economy
- a system where power is shared between people in the government
29
Who owns factors of production (mixed economy)
- owned by people in govt. and individuals
30
Who makes decisions (mixed economy)
- individuals and people in govt.
31
Circular Flow Model
- in general CFM's show relationship between all stakeholders in an economy
32
Free Market (stakeholders)
- Firms
| - Businesses
33
Mixed Economy (stakeholders)
- Firms
- Households
- Govt.
34
Factor Market
- Stakeholders: households
| - sell factors of production (labor)
35
Product Market
- Stakeholders: Firms
| - Sell products
36
Free Enterprise (purpose)
- to maximize freedom
37
7 Principle of free enterprise
- Voluntary exchange: you make your own decisions; you decide what you buy and sell
- Free Contract
- Legal Equality: all have equal rights
- Open Opportunity: everyone has a chance to succeed
- Competition
- Private property rights: use resources intelligently
- Profit motive: to get rich
38
Market Failure
- any situation where a market is overproducing something bad or underproducing something good
39
Public Good
- any good that you cannot stop someone from using even if they did not pay for it
40
Extranality
- an economic side effect on an action/ a cost or benefit that effects other people instead of you
41
Micro Econ
- study of small details (single household)
42
Macro Econ
- study of entire economies
43
3 goals of Govt.
- high employment
- steady growth
- Steady Prices: low/non-zero inflation
44
Inflation
- increase in prices (stuff is expensive)
45
Gross Domestic Product (GDP)
- value of all goods and services produced
46
Poverty
- earning less than the poverty threshold
47
Poverty Threshold
- minimum income needed to support your family
48
Welfare programs
- transfer wealth/income from taxpayers to othergroups
49
Entrepeneur
- people who take the risk of starting a businesses/ bring together land, labor, capital to start a business
50
Business Cycle
- period of expansion, followed by contraction
51
Price
- the amount a consumer pays for a good or service
52
Quantity Demanded (QD)
- the amount of a product that all consumers would buy at one particular price (QD is always a number)
53
Law of Demand
- as price increases quantity demand goes down; vice versa
54
Demand
- the relationship between price and QD
55
Ceteris Paribus
- Latin "all else held constant"
56
Inferior goods
- products where demand decreases as income increases
| - ex: ramen
57
Normal goods
- any product where as income increases, demand increases
58
Substitutes
- two complementing goods (chicken vs. beef)
59
Complements
- two goods that are bought together
60
Elasticity of Demand
- a measurement of how consumers react to a change in price
61
Elastic
- responsive to price changes
| - Qd changes MORE that price (elasticity>1)
62
Inelastic
- unresponsive to price changes
| - Qd changes LESS than price (inelasticity<1)
63
Unitary
- elasticity = 1
64
Formula for elasticity
- E= /(Qo-Q1)/(Qo)/(Po-P1)/(Po)/
65
Quantity Supplied
- amount of a product that sellers (firms) would be willing to sell at a given price
66
Supply
- a prediction of what quantity supplied will be at all prices (not ever a single number)
67
Law of Supply
- as price increases, quantity increases; vice versa
68
Elasticity Supply
- a measurement of how producers react to a change in price
69
Marginal Product of labor
- change in output from hiring one more worker
70
Diminishing Marginal Returns
- MPL is shrinking
71
Negative Marginal Returns
- MPL is negative
72
Marginal Revenue
- change in income from producing one more unit (always equal to price)
73
Marginal Cost
- change in cost from producing one more unit (always increases once diminishing returns are hit)
74
Equilibrium
- the point where quantity supplied equals quantity demanded
75
Po
- equilibrium price (market price)
| - the price that will be used
76
Q
- equilibrium quantity
| - amount that will be bought/sold
77
Disequilibrium
- excess supply
| - excess demand
78
Surplus
- excess supply
- Qs>Qd, price is above Po
- result: price will drop to Po
79
Shortage
- excess demand
| - Qs
80
Price Ceiling
- max price
81
Price floors
- minimum wage
82
Role of price
- price determines how society allocates (distributes) resources
83
Perfect competition
- market structure w/many firms selling identical products; little to no control over price
84
Market Power
- control over prices
85
Perfect Information
- everyone is aware of what everyone is doing
86
Monopoly
- market structure; dominated by a single seller
87
Barriers to entry are complete
- no one can get in
88
Start up costs
- any money used to start up a business
89
Full market power
- monopolies control supply curve
90
Govt. Monopoly
- Monopoly created by govt. (patents)
91
Natural Monopoly
- a market that is most efficient with only one seller
| - caused by economics of scale: average total cost decreases as customers increase
92
Monopolistic Competiton
- not monopoly
- many firms selling similar, not identical products
- firms have some market power
93
Non price competitons
- competing by changing some aspect of the product, such as quality, shape, branding, location, or service, but not changing price
94
Oligopoly
- a small handful of firms control most of the output
| - (min: 2/ max: less than a lot ex:10)
95
Collusion
- illegal agreement by firms to not compete
96
Specialization
- focusing labor on one task
| - allows for increasing marginal returns
97
Regulation/ deregulation
- govt. rules limiting production/ opposite of regulation
98
Barter
- direct exchange of goods and services
99
Money
- anything that can be used as
- medium of exchange
- unit of account
- store of value
100
Currency
- bills and coins used as money (all money is currency, not all currency is money)
101
6 Characteristics of Money
- portability
- durability
- uniformity
- divisibility
- limited supply
- acceptability
102
3 Types of Money
- commodity: something that has value on its own
- representative: paper money backed by a commodity
- fiat money: money that has value because the govt. said so
103
Fractional Reserve banking
- a banking system where banks only keep a portion (fraction) of deposits on hand, and lend out the rest
- how banks make money
- lending creates money
104
Bank run
- panic where all customers try to withdraw their money at once
105
Federal Reserve
- US central bank
106
Federal deposit insurance corporation
- insures deposits up to $250,000
107
Money supply
- total amount of money in an economy
108
Mortgage
- loan used to purchase real estate
109
Installment Loan
- car loan
