Economics Flashcards
What are economics?
Economics is a social science concerned with how people, institutions, and society making optimal choices under conditions of scarcity.
What is the issue with economic wants?
They exceed the economies production capacity.
What is the economic perspective?
A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.
What is scarcity?
The limits placed on the amounts and types of goods and services available for consumption as the result of there being only limited economic resources from which to produce output.
What does the economic perspective consider?
Scarcity and choice, opportunity cost, purposeful behavior to increase utility, and marginal analysis by comparing the marginal benefits and marginal costs.
What does scarcity and choice mean?
Resources are scarce and choices need to be made to maximize benefits.
What does “rational self interest” mean?
Individuals and business make rational decisions that will make them better not worse off.
What is purposeful behavior?
Allocating time, energy, and money to maximizing satisfaction by weighing the cost and benefits. Describes when economic decisions are rational, not random or chaotic.
What is utility?
The want-satisfying power of a good or service.
What is the relationship between individuals and utility?
The goal is to maximize utility/satisfaction for the individual.
What is marginal analysis?
The comparison of marginal benefits and marginal costs is usually for decision-making.
What is the relationship between scarcity and marginal analysis?
In a world of scarcity, the decision to obtain the marginal benefit associated with some specific option always includes the marginal cost of giving up something else.
What is the scientific method for economic principles, theories, and models?
- Observe real world behavior
- Formulate a hypothesis
- Test the hypothesis
- Accept, reject, or modify the hypothesis
- Continue to test the hypothesis. If favorable results continue the hypothesis evolves into a theory
What is a “good” economic theory?
A theory that does a good job of explaining how individuals and institutions actually behave in producing, exchanging, and consuming goods/services.
What is an economic principle?
A generalization about economic behavior that is true for the average person, expressed usually in tendencies of the avg. consumer, worker, or businesses.
What is the other-things-equal assumption? (or ceteris paribus)
The assumption that variables other than those being considered did not change for a particular analysis.
What are micro-economics?
The study of the individual consumer, worker, business firms, households, or markets that puts a a figurative microscope to groups.
What are some examples of micro-economics?
Things like change in price of a specific item, the income of a household, the expenditures of a government entity or family, or the demand/supply of a particular product.
What are macro-economics?
The study of the entire economy as a whole or a major aggregate of the economy. (ALL households, ALL consumers, etc)
What are some examples of macro-economics?
Taking a look at economic growth, the business cycle, interest rates, inflation, and the behavior of major economic aggregates such as government, household, and business sectors. Also things like total output, total employment, total income, etc.
What are positive economics?
Economic statements that are factual. They focus on cause and effect statements and avoid value judgements. Also established with scientific statements.
“what is”
What are normative economics?
Economic statements that involve value judgements. Incorporates value judgements about the economy. Underlies expression of support or opposition to particular economic policies.
“what ought to be”
What is the economizing problem?
The choices are necessitated because society’s economic wants for goods and services are unlimited, but the resources available to satisfy these wants are limited.
What is a budget line?
A line that shows the different combinations of two products a consumer can purchase with a specific money income, given the products’ prices.
What is opportunity cost?
The amount of other products or effort that must be forgone or sacrificed to produce a unit of a given product.
What are the four resource categories?
Land, labor, capital, and entrepreneurial ability.
Define land
Includes all natural resources used in the production process.
Define labor
physical actions and mental activities that people contribute to the production
Define capital
All human-produced physical objects and intangible ideas used in production (everything from intellectual property to machinery and factories)
Define entrepreneurial ability
Special human resource distinct from labor
What is the function of entrepreneurs?
To employ the other factors of production, take initiative, make strategic business decisions, innovate, and take risks.
What is the production possibilities model?
An economic model that shows different combinations of two goods that an economy could produce.
What is full employment?
Full employment is when everything in the economy is in full use assuming that resources are fixed, along with technology, and consumer/capital goods.
What does the production possibilities curve illustrate?
- Scarcity of resources is implied by the area of unattainable combinations of output outside the curve
- Choice among outputs is reflected in the variety of attainable combinations of goods lying along the curve
- The law of increasing opportunity costs is reflected in the bowed outrage shape of the curve
What does fixed resources mean?
The quantity and quality of the factors of production are fixed.
What does fixed technology mean?
The state of the methods used to produce output is constant.
What is the law of increasing opportunity cost?
As more of a particular good is produced, its marginal opportunity cost increases.
What does the production possibilities curve chart?
The act of giving up one thing economically, to get more of another thing. That explains the concave shape.
What is the optimal output for production?
Where the marginal benefit and marginal cost intersect. (and are equal)
What does international trade encourage?
Specialization at home, increased production possibilities internationally, and new possibilities and innovation.
What does unemployment do?
It causes an economy to operate at a point inside its production possibilities curve.
What causes economic growth and shifts the production possibilities curve outward?
Increases in resource supplies, improvements in resource quality, and technological advancements.
