Final Review Flashcards
The Economic Problem
Unlimited Wants
Scarce Resources -
Land, Labour, Capital
Resource Use
Choices
What questions does economics propose?
What goods and services should an economy produce?
How should goods and services be produced?
Who should get the goods and services produced?
Opportunity Cost
What you have to give up to buy what you want in terms of goods or services
—–Helps us view the true cost of decision-making
—–Implies valuing different choices based on personal circumstances
Production Possibility Frontiers
Show the different combinations of goods and services that can be produced with a given amount of resources.
No “ideal” point on the curve.
Any point inside the curve - suggests resources are not being utilized efficiently.
Any point outside the curve - not attainable with the current level of resources.
Useful to demonstrate economic growth and opportunity cost.
Laws of the PPF
There is a finite maximum production capacity for all things.
Points within the PPF are possible, but not efficient.
Points outside of the PPF are impossible.
Points on the PPF are possible and efficient.
When moving between points on the PPF, to increase the production of one good, you must decrease the production of another good so that resources are reallocated.
Marginal Benefit
The maximum amount that a consumer is willing to pay for an additional good or service.
—-The marginal benefit decreases as the person consumes more and more of the item.
Marginal Cost
The change in total production cost that comes from making or producing one additional unit.
Garrett Hardin: Economist
Authored essay in 1968 titled The Tragedy of the Commons.
Explored the following issues:
Environmental degradation
Population growth
Limited natural
resources
Privatization of land and other public
resources
Pollution
What does ‘commons’ mean?
“Held in common” means the resource is owned by:
—–Taxpayers and not an individual or corporation
—–All who have access to the resource hold it in common ownership
Tragedy of the Commons
failure to preserve the natural resource for short-term gain and self-interest is known as “the tragedy of the commons.”
ie: more cows in a pasture mean more money for farmer. So each farmer puts another cow on the pasture, but then there are too many cows and they all die.
Sustainability
Meeting present needs without compromising the needs of future generations.
3 pillars of sustainability are SEE (social, environmental, and economic needs).
Use resources at a rate lower than the rate at which they are replenished.
Examples of current tragedy of the commons
Air pollution (adding GHG and smog to the air)
Water pollution (nitrogen, phosphorus, pesticides, heavy metals and so on)
Uncontrolled human population growth leading to overpopulation
Deforestation for agriculture/Habitat disruption and fragmentation
Price Speculation
Predicting future prices of goods in the market
Speculators do what they hope will make them a profit (buy/sell certain goods)
Hoarding
Keeping all materials/resources/capital for yourself/company
Costs and Benefits of Government Spending Programs
Some occasions where spending is more than benefits that Congress will pass.
The Budget Process
POTUS prepares budget
Congressional Budget Office advises Congress about the effects of the budget
Compromises are made with Congress
Budget Plan is presented to the public
Congress has until Oct 1st to pass budget
Once it passes, the spending becomes law for that year
What is Fair Share?
Benefits-Received Principle: People should pay in taxes an amount equal to the benefits she or he receives from government.
Ability to Pay Principle: People should pay taxes according to their abilities to pay.
More you make, the more you should pay
Benefits-Received Principle:
People should pay in taxes an amount equal to the benefits she or he receives from government.
Ability to Pay Principle:
People should pay taxes according to their abilities to pay.
More you make, the more you should pay
Balanced and in Deficit
Deficit: when the government expenditures are greater than the taxes collected.
Surplus: when the government expenditures are less than tax collected
Before the Great Depression, Americans favored a balanced budget until the introduction of the New Deal.
National Debt increases when we have a deficit.
What is the Federal Reserve?
12 Federal Districts
—-Nearest to us is in San Francisco
The major policy-making group within the Fed is the Federal Open Market Committee (FOMC).
This 12-member policy-making group has the authority to conduct open market operations.
What does the Federal Reserve Do?
The Federal Reserve has six major responsibilities:
- Control the money supply.
- Supply the economy with paper money, or Federal Reserve notes.
- Hold bank reserves. Each bank that is a member of the Federal Reserve System is required to keep a reserve account with its district bank.
- Check-clearing process.
- Supervise member banks. If the Federal Reserve finds that a bank has not followed established banking standards, it can pressure the bank to do so.
- Serve as the lender of last resort for banks suffering cash management problems.
What Will You Earn?
Wage rates for different occupations vary.
Your wage rate (and salary) will depend on a number of things.
—- One is the demand for your labor services.
—– The other is the supply of these labor services (i.e., other qualified people).
Two factors will make the demand for your labor services high:
The demand for the good you produce.
Your productivity.
Two factors will make the demand for your labor services high:
-The demand for the good you produce.
-Your productivity.
