Econ Test Flashcards
What is the technical definition of Economics?
The study of how society chooses to allocate its scarce resources to the production of goods and services in order to satisfy unlimited wants.
Economics simplified definition
Study of choices
What is the most basic problem and fundamental principle of Economics?
Human wants are forever greater than available supply of goods, time, and resources; aka scarcity
What is scarcity, and how does it influence decision-making by societies and individuals?
Scarcity is the conditions that human wants unlimited and resources are limited. It influences who gets more of certain things and how much economies make.
What are the three economic questions?
What to produce?
How to produce it?
For whom to produce?
What is an economist?
an expert who studies the relationship between a society’s resources and its production or output
What is the difference between Microeconomic and Macroeconomics?
Microeconomics is the study of individual choices, household choices, firm choices, etc. Macroeconomics is the study of the economy as a whole.
What is the difference between consumers and producers?
Consumers purchase goods/services and producers decide what they are going to sell and what price it is.
What is the difference between a good and a service
Goods are things you can buy and keep, are tangible
and service is things that people provide that can’t be owned
3 examples of good
-Coffee
-Vinyls
-Cheesecake
3 examples of services
-Plumber
-The person making the coffee
-A cashier bagging the clothes you bought
What does allocation means in terms of scarcity?
Ways societies and people answer the economic questions and allocate resources.
8 allocations strategies
1.) First come first serve: Tickets to a concert
2.)Majority Rule: Vote on who gets the pumpkin pie
3.)Need: At the food banks, the people that don’t have food get the food from the food bank
4.)Planner decides: The teacher decides who gets the last cupcake.
5.)Person who wins the arm wrestle gets. 20 dollars
6.) Share: Everyone gets a slice of pizz
7.) Lottery: A person wins the lottery and gets money
8.)Market Mechanism: A company spends the most money buying all the supply of milk.
What are factors of production? Which are needed
Things that are used/needed to help produce (make) products (goods/services)
What are the four factors of production?
Capital
Entrepreneurship
Labor
Land
What is the difference between cost and benefit?
A cost is a negative consequence or thing that will not make you want to do the action and a benefit is a positive consequence that will make you want to do the action.
Rational choice theory
Humans are rational actors and they will make the “rational” decision. They will evaluate the positive and the negative effects of their actions and make decisions based on their self interest
trade offs
Scarcity requires people to make choices. Tradeoffs are the alternate choice to one that is given up.
—Lemonade over Cheetos in the store.
opportunity cost
The value of the next best choice that you give up. The next best opportunity when a choice is made. Opportunity cost= only one item.
What are incentives?
Cost/benefit that motivates a decision/action by consumers, businesses, or other participants in the economy
How do incentives relate to economics
It will make someone want to buy something or not buy something
Positive incentive
Gives a child 3 dollars to clean the bathroom
Negative incentive
Take away a toy for hitting their sister
Economic incentive
Buy one get one free
Social
If you wear your hair down curled then you will get complements
Moral
If you kill, then you will go to hell
3 examples from freakonomics
-If they get good grades, then they get 50 dollars a month
-If they use the bathroom then you will get MnM’s
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What does the Product Possibility Curve/Frontier show?
A model that shows different ways that an economy can use its scarce resources.
What points on a PPF graph are impossible?
The ones on the outside of the lines
What points on the PPF are inefficient
The ones inside the graph, like inside inside
What points are efficient?
The points on the line
What two types of efficiency?
-Productive Efficiency: Products produce in the least costly way
–Any point
-Allocative efficiency: Products being produced are the ones desired by scarcity-
Law of diminishing utility. How do businesses use it?
Total utility will eventually decline as a consumer consumes successive units of a given product in a short amount of time.
What is an economic system?
It describes how a country’s economy is organized.
The four economic systems
Market Economy
Command Economy
Mixed Economy
Traditional economy
Traditional Economy
Based on customs and traditions of community or society.
Currently, they are in some parts of Africa, India, and the Inuits
Command Economy
Government owns/ operates every factor of production.
->socialism
There are countries that are close like China and Cuba. More theoretical.
Market Economy
The Individuals own and operate the building machinery and property production.
->Capitalism.
->Industrial America/Britain were close= theoretical
Mixed Economy
It depends on which side of the Market and Command spectrum it is close to.
->Every country is like this.
How do you show both types of efficiencies in a PPF?
Productive is any points on the graph. Allocative: Depends on the desires of scarcity->If there is no electricity, pick the bike
What does there is no such thing as a free lunch mean?
There is always something that you are giving up and another option. You may get a free lunch, but you may miss out on studying for a test.
What is Utility?
Product’s power to satisfy a want or need
Marginal Utility
Extra satisfaction from one additional unit of a specific product.
