Exam 1 Flashcards
Economics
The study of how to best fulfill our unlimited wants with our limited or scarce resources
Macroeconomics
The study of national and international economic questions and concerns (effects people as a whole)
Microeconomics
The study of individual economic concerns and questions (individual person or firm)
Opportunity cost
the foregone alternative that you have to give up in order to take action
Macro resources
land, labor, technology and capital
micro resources
money and time
What determines prices?
supply and demand
Economists make decisions by comparing what to what?
Marginal cost vs marginal benefits
What is the main way to think about the economy?
Anticipating shifts in demand
tariff
taxes on goods
tariffs create what?
deadweight losses
Economists favor what over tariffs?
free trade
How does the government get money?
from the citizens pockets
Moral Hazard
When the knowledge that I will be bailed out encourages me to take on risky behavior
Opportunity costs of going to college:
- housing/rent
- dining/food
- tuition
- parking pass
- school equipment
- social events
- forgone salary
- clothes
- health issues
- travel/gas
Sunk Costs
buying or selling more stock after already losing money
What happens when tips become exempt form income tax?
It leaves room for lots of fraud or money laundering.
What is the marginal cost of a plate of food at an all you can eat buffet?
0 so eat all you can
Markets
a collection of buyers and sellers
Adam Smith
the father of market economics, recognized a market to work efficiently, we need a group of independent buyers and sellers
Positive statment
can be tested; number based
normative statement
can not be tested; opinion based
CETERIS PARABUS
holding outside factors constant
What are the three fundamental economic questions?
- what to produce
- how to produce
- how to divide wealth
Production Possibility Frontier PPF
shows what society could produce if they are using resources efficiently and there is no unemployment
How can you find the opportunity cost of producing a good?
look at the slope of a PPF
Allocative efficiency
highest amount of production while also making the most money
productive efficiency
highest amount of production, inefficiency. Can be caused by unemployment
What tells us the size of the frontier?
the amount of resources
What economies are more productive than command economies?
market economies
comparative advantage
determines what goods a nation specializes in or produces. Based on the opportunity costs. Determines trade
absolute advantage
ability to produce at a lower cost
