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ASD Senior Year > Economics Chapter 1 and 2 > Flashcards

Economics Chapter 1 and 2 Flashcards

1
Q

Economics

A

the study of how humans make decisions in the face of scarcity.

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2
Q

Scarcity

A

human wants for goods, services and resources exceed what is available.

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3
Q

Two causes of scarcity

A

Supply is limited because resources are limited. Demand, however, is virtually unlimited.

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4
Q

Where can you get a lot of data on economics?

A

FRED website

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5
Q

Who published the The Wealth of Nations in 1776?

A

Adam Smith

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6
Q

Adam Smith significance

A

Introduced the concept of division of labor

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7
Q

Division of Labor

A

The way in which different workers divide required tasks to produce a good or service

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8
Q

How did Adam Smith exemplify the division of labor?

A

The fact that it took 18 separate tasks to make a pin

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9
Q

Why does division of labor increase production? (Three reasons)

A

Specialization, Outcome of Specialization, and Economics of Scale

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10
Q

Specialization

A

When workers or firms focus on particular tasks for which they are well-suited within the overall production process

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11
Q

Outcome of Specialization

A

Workers who specialize in a particular task often learn quicker and produce with higher quality

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12
Q

Economics of Scale

A

When the average cost of producing each individual unit declines as total output increases

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13
Q

Outcome of Specialization in Businesses

A

In many cases, a business that focuses on one or a few products (sometimes called its “core competency”) is more successful than firms that try to make a wide range of products.

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14
Q

Microeconomics

A

The branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms

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15
Q

Macroeconomics

A

The branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance

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16
Q

Monetary policy

A

Policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing

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17
Q

Fiscal Policy

A

Economic policies that involve government spending and taxes

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18
Q

Theory

A

A representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation

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19
Q

Model

A

Synonym for Theory but with a more applied and empirical representation. Models test theories

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20
Q

Circular Flow Diagram

A

A diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market

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21
Q

Goods and services market

A

A market in which firms are sellers of what they produce and households are buyers

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22
Q

Labor market

A

The market in which households sell their labor as workers to business firms or other employers

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23
Q

Three ways society organizes economy

A

Traditional Economy, command economy, market

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24
Q

Traditional economy

A

Typically an agricultural economy where things are done the same as they have always been done

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25
Command economy
An economy where economic decisions are passed down from government authority and where the government owns the resources
26
Difference between Command and Market Economy
Command: Centralized Market: Decentralized
27
Market
Interaction between potential buyers and sellers; a combination of demand and supply
28
Market economy
An economy where economic decisions are decentralized, private individuals own resources, and businesses supply goods and services based on demand
29
Market economies are based on
private enterprise
30
Private enterprise
System where private individuals or groups of private individuals own and operate the means of production (resources and businesses)
31
In recent decades, the overall trend in economic freedom internationally has been
A higher level of economic freedom around the world
32
Top 12 most economically free countries
Hong Kong, Singapore, New Zealand, Switzerland, Australia, Canada, Chile, Ireland, Estonia, UK, US, Denmark
33
Top 12 least economically free countries
North Korea, Cuba, Venezuela, Zimbabwe, Turkmenistan, Eritrea, Republic of Congo, Iran, Equatorial Guinea, Argentina, Democratic Republic of Congo, Timor-Leste
34
Economies that are primarily market-oriented have
Fewer Regulations
35
Things regulations govern
Matters like safeguarding private property against theft, protecting people from violence, enforcing legal contracts, preventing fraud, and collecting taxes.
36
Underground economies (Black Markets)
A market where the buyers and sellers make transactions in violation of one or more government regulations
37
Globalization
The trend in which buying and selling in markets have increasingly crossed national borders
38
Some reasons why globalization increased
Improvements in shipping, innovations in computing and telecommunications, international agreements and treaties between countries
39
Exports
Products (goods and services) made domestically and sold abroad
40
Imports
Products (goods and services) made abroad and then sold domestically
41
Gross domestic product (GDP)
Measure of the size of total production in an economy
42
The ratio of exports divided by GDP measures
What share of a country’s total economic production is sold in other countries.
43
In recent decades, the export/GDP ratio has generally _______ both worldwide and for the U.S. economy.
Risen
44
Smaller Countries like _______ need to trade across their borders with other countries to take full advantage of division of labor, specialization, and economies of scale.
Belgium, Korea, and Canada
45
Why is the share of U.S. exports in proportion to the U.S. economy well below the global average?
Large economies like the United States can contain more of the division of labor inside their national borders.
46
Medium and low income countries around the world, like Mexico and China, have also experienced a _____ of globalization in recent decades.
surge
47
Every choice has a(n)
cost opportunity cost
48
Budget Constraint
all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set
49
Opportunity Cost
Measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative
50
Go to budget constraint equation and do it
okay lol
51
The budget constraint framework helps to emphasize that
most choices in the real world are not about getting all of one thing or all of another; that is, they are not about choosing either the point at one end of the budget constraint or else the point all the way at the other end.
52
Marginal analysis
examination of decisions on the margin, meaning a little more or a little less from the status quo
53
Utility
satisfaction, usefulness, or value one obtains from consuming goods and services
54
Economists typically assume that the more of some good one consumes
the more utility one obtains.
55
the utility a person receives from consuming the first unit of a good is typically more
more than the utility received from consuming the fifth or the tenth unit of that same good.
56
law of diminishing marginal utility
as we consume more of a good or service, the utility we get from additional units of the good or service tends to become smaller than what we received from earlier units Refrains "all or nothing" choices
57
The budget constraint framework assumes that
sunk costs should not affect the decisions
58
Sunk costs
costs that we make in the past that we cannot recover if you already paid the ticket price and you hate the movie, why stay and waste more time watching?
59
production possibilities frontier (PPF)
a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available.
60
Because society has limited resources (e.g., labor, land, capital, raw materials) at any point in time,
there is a limit to the quantities of goods and services it can produce.
61
PPFs clearly show
tradeoffs between variables
62
What does the slope of the PPF show?
The opportunity cost
63
Two major differences between budget constraint and PPF
1. Budget constraint is a straight line (slope is relative prices of two goods, which is fixed, thus doesn't change) PPF is curved because of the law of diminishing returns 2. the absence of specific numbers on the axes of the PPF (we do not know the exact amount of resources this imaginary economy has)
64
Why are budget constraint lines straight?
the relative prices of the two goods in the consumption budget constraint determined the slope of the budget constraint
65
Why is the PPF line curved?
if a large number of resources are already committed to one variable, then committing additional resources will bring relatively smaller gains. (as we add more resources to one variable, moving from left to right along the horizontal axis, the original increase in opportunity cost is fairly small, but gradually increases.)
66
What pattern does the curved line in the PPF relate to?
the law of increasing opportunity cost
67
law of increasing opportunity cost
as production of a good or service increases, the marginal opportunity cost of producing it increases as well.
68
Why does the law of increasing opportunity cost happen?
This happens because some resources are better suited for producing certain goods and services instead of others.
69
Economic relation to efficiency
In the PPF, some choices are unambiguously better than others.
70
Two types of efficiency PPF can demonstrate
Productive efficiency and allocative efficiency
71
Productive Efficiency
when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)
72
Any choice on the PPF could be productively inefficient because
It is possible to produce more of one good, the other good, or some combination of both goods.
73
Allocative Efficiency
The particular combination of goods and services on the production possibility curve that a society produces represents the combination that society most desires.
74
Often how much of a good a country decides to produce depends on
how expensive it is to produce it versus buying it from a different country.
75
Comparative advantage
when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production
76
Absolute advantage
when a country can produce more of a good
77
Positive statements vs normative statements
Positive: describe the world as it is Normative: describe how the world should be
78
The economics approach portrays people as self-interested. For some critics of this approach, even if self-interest is an accurate description of how people behave, these behaviors are not moral. Instead, the critics argue that people should be taught to care more deeply about others. Economists offer several answers to these concerns. Name the three
1. Economics is not a form of moral instruction. Rather, it seeks to describe economic behavior as it actually exists. 2. We can label self-interested behavior and profit-seeking with other names, such as personal choice and freedom. 3. self-interested behavior can lead to positive social results.
79
the invisible hand
Adam Smith's concept that individuals' self-interested behavior can lead to positive social outcomes

ASD Senior Year (49 decks)

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