Lessons 1 Flashcards
What’re the factors of production? (4)
factors of production:
- labor
- natural resources
- physical capital
- entrepreneurship
What’s physical capital?
physical capital is MANMADE EQUIPMENT
examples of physical capital?
- machinery
- buildings
- roads
- vehicles
What’s the opportunity cost?
the next best use of that resource
- next best option you’re giving up
What’s marginal cost?
marginal cost is the additional cost incurred from consuming one more unit
What’s marginal benefit?
marginal benefit is the additional benefit you get from consuming one more unit
What happens the more you produce a good?
the more you produce a good, the greater the OPPORTUNITY COSTS
What does the production possibility curve look like?
it’s BOWED OUTWARDS
- like an upside down bowl
When are you productively efficient?
you’re productively efficient when you’re on the PRODUCTION FRONTIER
When are you allocatively efficient?
you’re allocatively efficient when you’re producing the optimal mix of goods and services that benefit society the most
What causes the economy to grow (in the long-term)?
economy grows when:
- the QUANTITY of resources increase
- the QUALITY of resources increase
- TECHNOLOGY increases
What’re the characteristics of capitalism?
capitalism
- private property owned by people
- freedom
- self-interest and incentives
- competition
- prices
What happens to demand when price increases?
demand DECREASES
What’s the relationship between price and the quantity demanded of a good?
there’s an INVERSE or NEGATIVE relationship
What’s the substitution effect?
when you change the quantity you demand when the price of one good changes
what’s the income effect?
when you change the quantity you demand when you’re income changes
What’re the determinants of demand? (6)
determinants of demand
- income
- prices of substitutes
- prices of complementary goods
- consumer tastes and preferences
- consumer expectations about future prices
- number of consumers
What’re normal goods?
When your income increases, you want more of that good
What’re inferior goods?
when your income increases, you want less of that good
What happens to the quantity supplies when the price of a good increases?
quantity supplied increases too
What happens to suppliers as the quantity supplied of a good increases?
They face rising marginal costs.
What leads to a movement along the supply curve?
a change in price leads to a change in quantity supplies/ a movement along the supply curve
What’re the determinants of supply? (6)
- cost of inputs
- technology and productivity
- taxes or subsidies
- producer expectations about future prices
- price of other goods you can produce
- number of suppliers
What do the determinants of demand and supply do?
they shift the demand or supply curve.
