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ECON 2020 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

definition of economics

A

The study of how any society best allocate scarce economic resources among many competing uses

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2
Q

Productive Efficiency

A

Not wasting resources, can we make more products without sacrifice?

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3
Q

Allocative efficiency

A

First must be productively efficient, but also producing wanted products (optimal)

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4
Q

Four categories of economic resources

A

Land
Labor
Capital (supplies and tools)
Entrepreneurship (risk takers, idea people)

NOT MONEY

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5
Q

Scarcity vs. shortage

A

Scarcity: short supply naturally occurring
Shortage: a market condition of a particular good at a particular price

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6
Q

3 fundamental economic questions

A

1) what to produce?
2) how to produce?
3) for whom to produce?

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7
Q

5 steps of the scientific method

A
  1. Problem
  2. Make assumptions (control variables, Ceteris paribus)
  3. Develop a model
  4. Make a prediction
  5. Test the model
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8
Q

Why do we use models in econ?

A

MODELS ARE SIMPLIFICATIONS OF THE REAL WORLD

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9
Q

Positive vs Normative analysis

A

Positive is factual

Normative is opinion

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10
Q

What is opportunity cost

A

The benefit of the next best alternative of the choice

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11
Q

What does the production possibilities frontier represent

A

And economic model that shows maximum production commissions of goods/services company is given its current stock of economic resources, the quality of its existing economic resources, and institutional constraints

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12
Q

Why is the PPF concave

A

LAW OF INCREAsING OPPORTUNITY COAT

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13
Q

Absolute advantage

A

The nation with the LOWER IMPUT COST

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14
Q

Comparative advantage

A

Whatever nation has the lower opportunity cost

We give up/what we make (the product in question)

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15
Q

Why do some think trade is bad?

A
  • lowers jobs in home country
  • not good for the economy
  • adverse working conditions
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16
Q

What can a nation do to protect itself against trade?

A
  • TARIFFS tax on imports even out the price between local and foreign goods
  • QUOTAS limit the quantity imported
  • EMBARGO- illegal import
17
Q

What factors give a nation a comparative advantage in production?

A
  • productivity differences TECHNOLOGY
  • factor abundance ECONOMIC RESOURCES
  • human skills
  • product life cycles INVENTORS AND COPIES
  • preferences
18
Q

Example question

What is the opportunity cost of reading this text book?

A

Having more free time to nap

19
Q

Demand

A

The amount of a good or service that consumers are both willing and able to buy at every possible price in a given time period

20
Q

Quantity demanded

A

Amount of a good or service that consumers are both willing and able to buy at a specific price in a given time period

21
Q

Supply

A

The amount of a good or service that firms are both willing and able to offer to sell at every possible price in a given time period

22
Q

Quantity supplied

A

The amount of a good or service that firms are both willing and able to offer for sale at a specific price

23
Q

Change in demand/supply vs change in quantity demanded/supplied

A

Change in d/s is movement of the entire curve

Change in quantity d/s is movement along the curve

24
Q

Why is demand downward sloping

A

LAW OF DEMAND: there is an inverse relationship between price and quantity demanded

25
Q

Why is supply upward sloping

A

LAW OF SUPPLY
if price goes up, quantity supplied goes up
Vice versa

26
Q

Determinants of Demand

A
  1. Change in Consumer incomes
  2. Change in consumers taste or preference
  3. Change in a price of a related food or service
  4. Change in consumers future expectations
  5. Change in number of customers
  6. CHange in exchange rate
27
Q

Determinants of supply

A
  1. Change in price of resources or change of production costs
  2. Change in tech/productivity
  3. Change in producers future expectations
  4. Change in number of producers
28
Q

Equilibrium

A

The one price and quantity combination that is compatible with intention of both the buyer and the seller

Qd=Qs

29
Q

Shortage and surplus

A

Qd>Qs, prices rise

Qs>Qd, prices fall

30
Q

6 steps to change in equilibrium

A
  1. Demand or supply shifts
  2. At the old equilibrium price a surplus or shortage occurs
  3. Due to the shortage or surplus, pressure is applied to price
  4. Quantity demanded and quantity supplied change
  5. Therefore, movement along the curve
  6. Return to equilibrium
31
Q

Price floor, what makes it effective

A

minimum price

binding when set above equilibrium

32
Q

Price ceiling when is it effective

A

Maximum price

Binding when set below equilibrium

33
Q

When and why might secondary rationing be needed

A

Exclusive to when price ceilings create an artificial shortage, used to help consumers afford products

34
Q

3 factors of economic growth (expansion of the PPF)

A
  1. Increase amount of nations economic resources
  2. Improve the quality of resources already have
  3. Government to relax institutional constraints

ECON 2020 (1 decks)

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