FINALS REVIEW Flashcards
What is the economic perspective?
A view point that envisions individuals and institutions making ration decisions by comparing marginal costs and benefits associated with their actions
What is the definition of economics?
The social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity
How does the PPC illustrate scarcity?
Scarcity is illustrated by the unattainable points outside of the curve
How does the PPC illustrate choice?
The PPC illustrates choice by the variety of different combinations on the curve
How does the PPC illustrate cost?
Cost is illustrated by the downward slope of the curve
What are the determinants of the PPC?
Technology, quantity, capital stock, and international trade
What are the five fundamental questions?
1) What goods and services will be produced?
2) How will they be produced?
3) Who will receive the goods and services?
4) How will the system accommodate change?
5) How will the system promote progress?
What is consumer sovereignty?
The role consumers play in deciding what is produces through their “dollar votes”
Why is specialization between nations good?
It makes use of difference in ability, fosters learning by doing, and saves time, overall achieving efficiency.
Positive economics
Analysis of facts or data to establish scientific generalizations (what is)
Normative economics
Value judgements on what the economy SHOULD be like (policy economics)
Factors of production/resources
Land, labor, capital, entrepreneurship
Productive efficiency
Production at the least cost possible, found at the minimum ATC
Allocative efficiency
Production of goods most wanted by society, MB=MC, and surplus is at a maximum
Market system
Market system relies on private property, freedom of enterprise (ensures people can obtain resources) and freedom of choice
Market system results in competition and incentives
A market brings together buyers and sellers
Command System
Heavily government run and is called socialism or communism
Two insurmountable problems of a command economy are coordination and incentive
Laissez Faire Economy
Little government and no one has ever attempted this, otherwise referred to as “pure capitalism”
Law of increasing opportunity costs
As the production of one good increases, so does the opportunity cost of the other
Law of diminishing marginal returns
As more workers are added, there is less benefit to each additional unit
Absolute advantage
A situation where one person can produce more of a good than another nation
Comparative advantage
A situation where one nation can produce a good at a lower opportunity cost than the other
“invisible hand”
Firms, while acting in their own self interest, will end up also acting in society’s best interest, creating unity between private and social interests
Individual’s economizing problem
Finite amount of income but infinite amount of wants. Solution to this is a budget line, a PPC
Society’s economizing problem
Where do we donate our resources?