macro test 1 Flashcards
what is the definition of economics?
the study of how society manages scarce ressources to satisfy endless needs
what is macroeconomics
it is the focus on total economic activity
what are some examples of economic activity
GDP, inflation, unemployment
what is microeconomics
the focus on individual markets and choices
what are some examples of markets and choices?
consumers, firms
what is scarcity
when the resources are limited but the needs are endless
what are some economic actors
households, businesses, government, workers
what are the factors of production
natural resources (N), Labour (L), Physical Capital (K), Human Capital (HK), Technology (A)
what is a trade-off
a balance achieved between two desirable but incompatible features
what is an opportunity cost
cost the the next best alternative that is foregone when making a decision
what is marginal thinking
decisions made by comparing marginal benefits and marginal costs
what are incentives
factors that motivate individuals to act
what is the definition of PPF
it is a graph that shows combinations of output that an economy can produce using available resources and technology
where does efficiency point to the PPF
it points on it
where does inefficiency point to the PPF
inside
where does unattainable point to the PPF
outside
what does the opportunity cost moving along the PPF involve
shifting resources between goods
what is economic growth
it is an outward shift due to more resources or better technology
what is a market?
a group of buyers and sellers
what is the law of demand
when the quantity of goods demanded falls as prices rises (ceteris paribus)
what is equilibrium
where quantity demanded equals quantity supplied
what are shifts in demand/supply caused by?
factors other than prices; incomes, tastes, technology
what is the fundamental economic problem addressed by macroeconomics?
scarcity of resources and how to allocate the efficiently
what are the four main factors of production
1- natural resources
2- labour
3- physical capital
4- human capital
how do markets achieve equilibirum?
through the interaction of supply and demand where quantity supplied equals quantity demanded
what are positive and normative statements in economics
positive statements are objective and fact based, while normative statements are subjective and value based
what role do incentives play by economics
they motivate individuals to make certain choices, influencing economic behavior
why is marginal analysis important in decision-making
it helps compare additional benefits and costs, ensuring optimal decisions
what does ppf stand for
production possibilities frontier
