econ final elzenga section 2 Flashcards
Invisible Hand Theorem
when the quantity supplied is greater than the quantity demanded, price has a tendency to fall; converse also exists
Efficiency
achieving a goal as cheaply as possible
Economic Institutions
laws, common practices, and organizations in a society (Including corporate, government, and cultural norms)
Economic Policies
actions (or inaction) taken by government to influence economic actions
Positive Economics
the study of what is, and how the economy works; lots of theory
Normative Economics
the study of what the goals of the economy should be
Production Possibility Curve
a curve measuring the maximum combination of outputs that can be obtained from a given number of inputs; visual image of the tradeoff between the cost of one good in terms of another
PPC demonstrates
There is a limit to what you can achieve, given the existing institutions, resources, and technology; Every choice you make has an opportunity cost. You can get more of something only by giving up something else
Increasing Marginal Opportunity Cost
opportunity costs increase the more you concentrate on the activity; in order to get more of something, generally one must give up ever-increasing quantities of something else
Comparative Advantage
better suited to the production of one good than to the production of another good
Points inside the PPC
represent inefficiency
Production Possibility Curve Shift Outward
increase in inputs or the productivity of inputs
Points on the PPC
represent efficiency
Points outside of the PPC
are not obtainable
Productive Efficiency
achieving as much output as possible from a given amount of inputs and resources
Inefficiency
getting less output from inputs that, if devoted to some other activity, would produce more output
Efficiency
achieving a goal using as few inputs as possible
Laissez-faire
an economic policy of leaving coordination of individuals’ actions to the market; translates to leave things alone
Effects of globalization on firms:
(Positive) since the world is larger than the domestic, the potential rewards are much greater; (Negative) it is much harder to compete in a global market
Law of One Price
the wages of workers in one country will not differ significantly from the wages of (equal) workers in another institutionally similar country
Institutions
the formal and informal rules that constrain human economic behavior
Market Economy
an economic system based on private property and the market in which, in principle, individuals decide how, what, and for whom to produce
Socialism
an economic system based on individuals’ goodwill towards others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce
Capitalism
an economic system based on the market in which the means of production resides with a small group of individuals called capitalists
