Economics Flashcards
Ceteris paribus
In economics, everything outside of the relationship you are examining remains constant
Economic question
What to create, how to make it, the needs and wants
Command economy
Government regulation, focus on basic needs, wants ignored. Much focus in military
Market economy
Resources owned by individuals. Economic question answered by supply and demand
Mixed economy
Aspects owned by government but big free aspect
Traditional Market
LLCR might be lacking
normative economics
“what ought to be”
Positive economics
“what is”
“fallacy of compositions”
what is true for the individual or the part is necessarily true for the group of the whole. This is an error of “generalizing from the particular to the general”.
“post hoc fallacy”
happenstance or coincidence is not causality. The fallacy is saying that because “A” precede event “B” , “A” is necessarily the cause of “B”
Correlation v causation
because two event occur together, one event has caused the other
“PPC”
Production possibilities curve
The slope of the PPC is your?
opportunity cost
PPC line means…
we are operating at full capacity with best available resources/ technology and producing at its full potential. All the resources are being maximized.
The curve indicates…
a changing trade-off. Obtaining more of one good requires giving up larger amounts of the alternative good.
Four assumptions on PPC Model:
1) Resources are fixed- there is no way to increase the availability of LLCE
2) all resources are fully employed
3) Technology is fixed
4) Only two things can be produced in PPC model
Economic Growth
Curve moves outward
Five PPC Concepts
1) Scarcity is represented by the frontier line
2) Choices are represented by the points ABCD
3) Opportunity cost is illustrated by the slope
4) Efficiency producing maximum output with available resources and technology.
5) Economic growth- A) more resources are available or B) technology improves.
types of income:
land: rental income, or rent
labor: wages
capital: Intrest payments
entrepreneurship: Profits
Types of spending
Households: Consumption
Firms: Investment (all spending by firms on capital goods)
Government: Government Spending (injection into circular flow, taxes are a leakage from the circular flow)
Foreigners: Exports (Exports are an injection into the circular flow, Imports are a leakage from the circular flow)
Real GDP =
nominal GDP / GDP deflator price index
total expenditures =
C + I + G + (X - M) where X is total exports and M is total imports
GDP growth rate =
(GDP2 - GDP1 / GDP1) * 100
Disposable income =
Income - taxes
Most economies are ________
cyclical
marginal benefit
A person’s marginal benefit is the maximum amount they are willing to pay to consume that additional unit of a good or service.
marginal cost
The change in total cost that comes from making or producing one additional item.
Scarcity
people have unlimited wants but resources are limited.
real wages =
nominal wages - inflation
nominal wages =
real wages + inflation
trade off
exchange for one thing in return for another. Opportunity cost is the value of the next highest valued alternative or the foregone cost
