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AP Economics > Economic Concepts and Models > Flashcards

Economic Concepts and Models Flashcards

1
Q

Economics Definition

A

A social science seeking to analyze and describe the production, distribution, and consumption of goods and services. It is the story of the choices people make to cope with scarcity.

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2
Q

Microeconomics definition

A

Microeconimics examines the economic behaviour of individual units like businesses and households in the face of scarcity and government interactions, as well as the economic consequences of these decisions on other actors.

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3
Q

Macroeconomics definition

A

Macroeconomics examines an economy as a whole with a view to understanding the interaction between economic aggregates such as national income, employment and inflation

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4
Q

What is positive or analytical economics?

A

the branch of economics analysis that describes the way the economy actually works.

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5
Q

What type of statements does positive or analytical economics use?

A

descriptive and conditional statements

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6
Q

What is a descriptive statement?

A

a statement that protrays things as they are or have been in the past

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7
Q

What is a conditional statement?

A

a statement that forecasts based on careful analysis of economic behaviour

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8
Q

What are normative or policy economics?

A

makes perscriptions about the way the economy should work. Has lots of disagreements

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9
Q

What kind of statements does normative or policy economics use?

A

statements that contain value judgments

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10
Q

What are value judgement statements?

A

statements that cannot be confirmed or refuted solely by reference to facts. Usually uses the word like should and is an argument

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11
Q

What are the 3 economic fallacies?

A
  • the fallacy of composition
  • the post hoc fallacy
  • the fallacy of single causation
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12
Q

What is the fallacy of composition?

A

what is true (good/bad) for an individual is not necessarity true (good/bad) for the economy as a whole.

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13
Q

What is the post hoc fallacy?

A

Just because event A happened before event B, it doesn’t mean that event A caused event B. The relationship between two things may be coincidence instead of cause and effect.

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14
Q

Where is the post hoc fallacy language derived from?

A

the latin phrase post hoc ergo propter hoc “after this therefore because of this”

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15
Q

What is the post hoc fallacy also known as?

A

the cause and effect fallacy

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16
Q

What is the fallacy of single causation?

A

cannot assume that a single factor caused something to happen

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17
Q

What are the 4 things for income?

A
  • saving / investments
  • taxes
  • local goods / domestic goods
  • imported goods
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18
Q

What is scarcity?

A

The study of the allocation of scarce goods among competing ends.

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19
Q

What is a resource?

A

anything that can be used to produce something else

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20
Q

What makes a resource scarce?

A

when the quantity available isn’t enough to satisfy all productive uses or wants

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21
Q

What are methods of dealing with scarcity?

A
  • people can do without some of the things they want
  • people can create more resources by new discorveries, more training, better tools
  • people can produce more by better use of resources
  • people can redistribute goods and services so that everyone has enough
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22
Q

What is opportunity cost?

A

the benefit of the next best choice. It is the value of the benefits of the foregone next best alternative that could have been chosen but was not.

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23
Q

What is an incentive?

A

a means of urging people to do more of a good thing and less of a bad thing. It is anything that offers rewards to people who change their behaviour.

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24
Q

What are the three basic incentives? They are often used together.

A
  • economic (What’s it worth to me?)
  • social (Will society act in a bad way if I do this thing?)
  • moral (Is it te right thing to do?)
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25
Q

What are examples of methods of allocation?

A
  • first come, first served
  • lottery
  • personal attributes
  • competitions
  • equal allocation
  • brute force
  • price
26
Q

What is efficiency?

A

Efficiency means society gets the most that it can from its scarce resources.

27
Q

When is an economy efficient?

A

when it takes all the opportunities to make some people better off without making other people worse off

28
Q

What is equity?

A

Equity means that everyone gets his or her fair share. Since people can disagree about what’s “fair,” equity isn’t as well-defined a concept as efficiency. Equity means the benefits of those resources are distributed fairly among the members of society.

29
Q

What are the three types of efficiency?

A
  • efficiency in production
  • efficiency in distribution
  • pareto efficiency
30
Q

What is efficiency in production?

A
  • producing a given basket of goods and services for the least possible cost
  • producing the desired mix of goods
  • produce the desired mix of goods at the least cost
31
Q

What is efficiency in distribution?

A

no other allocation of goods is able to make everyone better off without making someone else worse off

32
Q

What is pareto efficiency?

A
  • pareto efficiency is said to exist when no other improvements can be made in the allocation of resources to one individual without it causing a loss to others
  • It is a situation where it is not possible to make one person better off without it necessitating other people being worse off
33
Q

What is a productive resource?

A

anything that can be used to create or manufacture valuable resources

34
Q

What are the two types of resources?

A
  • tangible resources
  • intangible resources
35
Q

What is a tangible resource?

A

resources that have physical properties tat can be seen and touched

36
Q

What are examples of tangible resources?

A
  • raw materials
  • labour
  • real capital (facilities, machinery, equiment)
37
Q

What is an intangible resource?

A

resources that lack physical properties

38
Q

What are examples of intangible resources?

A
  • knowledge
  • entrepreneurship
  • environment for enterprise
39
Q

What are the production questions?

A
  • What to produce?
  • How to produce it?
  • For whom to produce?
40
Q

What is an economic system?

A

An economic system is the set of laws, institutions and common practices that help a nation determine how to use its scarce resources to satisfy as many needs and wants as possible

41
Q

What is a traditional economy?

A

a manner of production and the goods produced are the same as in the past. For example, each family produces what they need. Surplus goods are traded or bartered.

42
Q

What is an example of a traditional economy?

A

Bedouin in the Sahara Desert

43
Q

What is the command economy?

A

All production decisions are made by political leaders. Productive resources are owned by the state and individuals have the obligation of working for the state.

44
Q

What is an example of a command economy?

A

Cuba, USSR, North Korea

45
Q

What is a market economy?

A

economic activity is coordinated by many individuals who make indep decisions in a free market place. What will be produced is determined by consumer demand. How goods are produced is determined by profit goals. For whom goods are produced by are determined by people’s income.

46
Q

What kind of economy does Canada have?

A

A mixed economy - modified market economy. Both private and enterprise and state owned enterprise. Private property and crowned land. Individual choice and public ‘safety net’ through government programs and supports.

47
Q

What is a model?

A

A simplified representation of a real situation that is used to better understand real-life situations

48
Q

‘other things equal’ assumption means…

A

that all other relevant factors remain unchanged

49
Q

What is the production possibilities frontier curve?

A

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.

50
Q

The bow shaped curve is a number of maximum combinations of product A and product B that this hypothetical economy can produce in the short run.

A
51
Q

More of good A can only be produce with the sacrifice good B. As a nation attempts to produce more of any good, it must accept giving up more and more and more of other goods.

A
52
Q

What are the assumptions of the production possibilities curve?

A
  • two goods are produced depicting choices and trade-offs for a nation
  • full employment and full production for maximum utilization of resources
  • short term time frame over which resources cannot be improved or increased. The output represented by the curve is limited.
53
Q

What is the law of increasing relative cost?

A

As the output of a good increases, the opportunity cost of producing addiotnal unites of this good increases.

In the conversion of production from A to B, the most convertible resources were shifter first. Once transferred they are consumed. The resources remaining may not be as convertible, and are therefore less productive in producing B. The yeild of good B will be less. Less output per unit of input, increases the cost of producing good . Hence, “increasing opportunity costs.”

54
Q

What is the law of diminishing returns?

A

After some point, successive, equal-sized increases of a resource (factor), added to the fixed factors of other resources (factors), will result in smaller increases in output.

55
Q

What are diseconomies of scale?

A

declining efficiencies of production as output increases, average total cost/unit of production increases

56
Q

What is factor suitability?

A

as economy increases production of a specific good, the available resources utilized become less suited for the production of that good

57
Q

When can production extend beyon the PPC?

A
  • only for a short amount of time. Can result in overuse of resources and a potential future reduction in output as factories are closed for repairs, natural resources are exhausted and people recover from overwork
  • a country can trade with another country to reach a point outside the PPC
58
Q

What is an absolute advantage?

A
59
Q

What is a comparative advantage?

A

A person or country has a comparative advantage in an acitivity if that person or country can perform the acitivity at a lower opportunity cost than anyone else or any other country.

60
Q

Public ownership of the means of production can be associated with a command economy

A
61
Q
A

AP Economics (4 decks)

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