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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
Q

Command economy

A

An economy where economic decisions are passed down from government authority and where the government owns the resources

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26
Q

Difference between Command and Market Economy

A

Command: Centralized
Market: Decentralized

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27
Q

Market

A

Interaction between potential buyers and sellers; a combination of demand and supply

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28
Q

Market economy

A

An economy where economic decisions are decentralized, private individuals own resources, and businesses supply goods and services based on demand

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29
Q

Market economies are based on

A

private enterprise

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30
Q

Private enterprise

A

System where private individuals or groups of private individuals own and operate the means of production (resources and businesses)

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31
Q

In recent decades, the overall trend in economic freedom internationally has been

A

A higher level of economic freedom around the world

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32
Q

Top 12 most economically free countries

A

Hong Kong, Singapore, New Zealand, Switzerland, Australia, Canada, Chile, Ireland, Estonia, UK, US, Denmark

33
Q

Top 12 least economically free countries

A

North Korea, Cuba, Venezuela, Zimbabwe, Turkmenistan, Eritrea, Republic of Congo, Iran, Equatorial Guinea, Argentina, Democratic Republic of Congo, Timor-Leste

34
Q

Economies that are primarily market-oriented have

A

Fewer Regulations

35
Q

Things regulations govern

A

Matters like safeguarding private property against theft, protecting people from violence, enforcing legal contracts, preventing fraud, and collecting taxes.

36
Q

Underground economies (Black Markets)

A

A market where the buyers and sellers make transactions in violation of one or more government regulations

37
Q

Globalization

A

The trend in which buying and selling in markets have increasingly crossed national borders

38
Q

Some reasons why globalization increased

A

Improvements in shipping, innovations in computing and telecommunications, international agreements and treaties between countries

39
Q

Exports

A

Products (goods and services) made domestically and sold abroad

40
Q

Imports

A

Products (goods and services) made abroad and then sold domestically

41
Q

Gross domestic product (GDP)

A

Measure of the size of total production in an economy

42
Q

The ratio of exports divided by GDP measures

A

What share of a country’s total economic production is sold in other countries.

43
Q

In recent decades, the export/GDP ratio has generally _______ both worldwide and for the U.S. economy.

A

Risen

44
Q

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.

A

Belgium, Korea, and Canada

45
Q

Why is the share of U.S. exports in proportion to the U.S. economy well below the global average?

A

Large economies like the United States can contain more of the division of labor inside their national borders.

46
Q

Medium and low income countries around the world, like Mexico and China, have also experienced a _____ of globalization in recent decades.

A

surge

47
Q

Every choice has a(n)

A

cost
opportunity cost

48
Q

Budget Constraint

A

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
Q

Opportunity Cost

A

Measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative

50
Q

Go to budget constraint equation and do it

A

okay lol

51
Q

The budget constraint framework helps to emphasize that

A

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
Q

Marginal analysis

A

examination of decisions on the margin, meaning a little more or a little less from the status quo

53
Q

Utility

A

satisfaction, usefulness, or value one obtains from consuming goods and services

54
Q

Economists typically assume that the more of some good one consumes

A

the more utility one obtains.

55
Q

the utility a person receives from consuming the first unit of a good is typically more

A

more than the utility received from consuming the fifth or the tenth unit of that same good.

56
Q

law of diminishing marginal utility

A

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
Q

The budget constraint framework assumes that

A

sunk costs should not affect the decisions

58
Q

Sunk costs

A

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
Q

production possibilities frontier (PPF)

A

a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available.

60
Q

Because society has limited resources (e.g., labor, land, capital, raw materials) at any point in time,

A

there is a limit to the quantities of goods and services it can produce.

61
Q

PPFs clearly show

A

tradeoffs between variables

62
Q

What does the slope of the PPF show?

A

The opportunity cost

63
Q

Two major differences between budget constraint and PPF

A
  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
Q

Why are budget constraint lines straight?

A

the relative prices of the two goods in the consumption budget constraint determined the slope of the budget constraint

65
Q

Why is the PPF line curved?

A

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
Q

What pattern does the curved line in the PPF relate to?

A

the law of increasing opportunity cost

67
Q

law of increasing opportunity cost

A

as production of a good or service increases, the marginal opportunity cost of producing it increases as well.

68
Q

Why does the law of increasing opportunity cost happen?

A

This happens because some resources are better suited for producing certain goods and services instead of others.

69
Q

Economic relation to efficiency

A

In the PPF, some choices are unambiguously better than others.

70
Q

Two types of efficiency PPF can demonstrate

A

Productive efficiency and allocative efficiency

71
Q

Productive Efficiency

A

when it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service)

72
Q

Any choice on the PPF could be productively inefficient because

A

It is possible to produce more of one good, the other good, or some combination of both goods.

73
Q

Allocative Efficiency

A

The particular combination of goods and services on the production possibility curve that a society produces represents the combination that society most desires.

74
Q

Often how much of a good a country decides to produce depends on

A

how expensive it is to produce it versus buying it from a different country.

75
Q

Comparative advantage

A

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
Q

Absolute advantage

A

when a country can produce more of a good

77
Q

Positive statements vs normative statements

A

Positive: describe the world as it is
Normative: describe how the world should be

78
Q

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

A
  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
Q

the invisible hand

A

Adam Smith’s concept that individuals’ self-interested behavior can lead to positive social outcomes

ASD Senior Year (49 decks)

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