Econ final exam Flashcards
What is the Definition of Economics
A social science concerned with making optimal choices under conditions of scarcity
What is Scarcity
There is scarcity of economic resources that restricts options and requires choices. The opportunity cost of choice is what you lose for that choice
What must we assume about consumers in Purposeful Behaviour?
They make rational decisions
What is a marginal analysis
Compares marginal costs to marginal benefits.
What is the scientific method
Observe, formulate a hypothesis, test the hypothesis, accept/reject/modify the hypothesis, continue to test hypothesis
Definition of Microeconomics
Concerns the study of the individual firm, consumer, or market.
Definition of Macroeconomics
Concerns the study of entire economy or major aggregate of the economony
Positive economics
Something that is factual
Normative economics
Something that “ought to be” made by policy makers. They are judgements
What is the economic problem
Unlimited wants, but limited income
What is the budget line?
A schedule or curve that shows various combinations of two products a consumer can by with a fixed money income.
What is an opportunity cost
What isn’t being bought due to the other option in a budget line
What are the factors of production?
Land, labor, capital, human capital, entrepreneurial ability, technology
What is Laizzez-faire capitalism
No government implications, keeping the gov from interfering. The only government implications are to protect from theft (property rights) and legal contract enforcement. Adam Smith father of this.
What is the Invisible Hand?
If we let the market be, producers and consumers will come up with an efficient and equal price (market). Prominent in Adam Smith’s model
What is the command system
All government power. Everything is owned by government. North Korea.
What is the market system?
It is a mix of decentralized decision making with some government control. Most of the world uses this. Private ownership of resrources and private markets are dominant.
What is private property?
Promotes rights to own, produce, promote ideas, and grow. Encourages people to cooperate by helping to ensure that only mutually agreeable economic transactions occur
What is the freedom of enterprise?
Ensures that entrepreneurs and rivate businesses are free to obtain and use economic resources to produce their choice of goods and services and sell to chosen markets.
What is the Freedom of choice
Enables owners to employ or dispose of their property and money as they see fit
What is self-interest
Gives direction and consistency to what otherwise would be chaotic.
What is competition
Need competition to function. Competition amongst buyers and sellers diffuses economic power within the businesses and households that make up the economy.
What is market and prices
Decisions made on each side of the market determine a set of product and factor prices that guide resource owners, entrpreneurs, and consumers
What is technology and capital goods
advanced technology and capital goods are encouraged as it helps market economies achieve greater efficiency in production