ECON topic1-EXAM#1 Flashcards
economics is about people as decision makers
time is a scarce resource
what are the 4 main categories of people (decision makers) in the economy
consumers, firms, government, and the rest of the world.
C+I+G+(EXP-IMP)=
AE- aggregate expenditure
Aggregate expenditure is
reps the demand side of the economy which is a strong predictor of production and unemployment
what is the heart of economics
decision making
people make decisions because
resources are scarce
resources are scarce because
people want more than they need (unlimited wants)
scarcity
refers to the limited nature of societies resources
all decisions involve what
trade-offs
the cost of something is everything you give up to get it
opportunity cost
scarcity pushes people to make choices,
each choice involves a trade-off (opp. cost)
people respond to what
incentives
incentive
something that determines a person to act, i.e. to prospect of a reward or punishment
market
a group of buyers and sellers
free market
many decision makers
command economy
one decision maker with no incentives
markets are usually a good way to
organize economic activity
organize economic activity
what, how, how much, who
are signals that guide the allocation of resources in a market economy
prices
- tend to go to extremes
- mkt power (monopoly)
- public goods (highway)
markets are not perfect, the government can improve them with economic policies
roles of government (2)
- enforce property rights and rule of law
2. provide public goods
exernalities
taken to produce a benefit, but comes with side effects
ex: second hand smoke
government may alter market outcome to promote efficiency by correcting what
market failures
causes of market failure (2)
- exernalities, when the production or consumption of a good affects bystandards (pollution)
- market power, a single buyer or seller has substantial influence on the market price (monopoly)
macroeconomics refers to
policy making in economics
a country`s standard of living depends on
its ability to produce goods and services
the most important determinant of living standards is
productivity, the amount of goods and services produced per unit of labor
production depends on what (4)
education, skills, technology, and equipment (capital) available to workers
what is the most important economic process?
production
production is the process that transforms scarce resources into
useful goods and services
this is the outputs of the production process
goods and services
resources or factors of production are the what into the production process?
inputs
inputs=factors of production=resources
anything provided by nature and previous generations that can be used in production (to satisfy human needs)
what are the 4 types of resources?
- labor
- capital
- land
- entrepreneurship
the physical and mental potential that people contribute in the production of goods and services
labor
goods that are themselves produced and used in the future production of other goods and services
capital
is the physical space in which production takes place, as well as the natural resources found under it or on it, such as oil, iron, coal, and lumber
land
the special skill of organizing labor, land, and capital, for production. start a new business, develop new production techs, and introduce new products
entrepreneurship
what is the only way of producing new capital
investment
investment
the process of using resources to produce new capital
the opportunity cost of investment in new capital is the
forgone consumption
the economy behaves differently in the
SR than in the LR
in the SR, the major objective is (2)
production and unemployment
in the LR, the major objective is (1)
economic growth
unemployment
the group of people, in the labor force, that do not have a job despite their efforts to find one
economic growth
the speed or rate at which production increases
main sources of economic growth (3)
- better education- human capital accumulation
- technological innovations (thru research and development)
- physical capital accumulation (via investment)
what can make everyone better off
trade
produce what your best in one good or service and exchange it for other goods and services
specialization
why do countries benefit from trade and specialization (2)
- get a better price abroad for goods and services
2. buy goods that cannot be produced domestically
what are the 3 basic economic questions any society has to answer because of scarcity
- what gets produced?
- how is it produced? (labor, capital)
- who gets what is produced?
a production arrangement that transforms society`s scarce resources into useful goods and services
economic system
two economic visions
- the capitalistic vision
- the socialist vision
what is core mechanism in capitalistic vision
price system
what are the 3 main benefits of government intervention? (mixed system)
- minimize market inefficiencies
- provide public goods
- stabilize the economy thru economic policies
what is a normal inflation rate?
3%
income inequality
min wage
SR benefits and LR consequences
entry to work force will be lowered and the solution is in the LR
crisis are opportunities to
learn and innovate
