Micro 1/6 1st year Flashcards
what is a normative statement
a matter of opinion
what is a positive statement
a matter of fact- can be proven
what is the basic economic problem
how do we satisfy needs and wants with finite resources
what info r PPFs designed to offer
shows us different production combinations that can be produced given a fixed resource stock
what are feasible production points
a set of goods that can be produced w/ available resources
what are infeasible production points
set of goods that cannot be produced with the available resources (outside ppt)
what is productive efficiency
producing a combo of goods where you cannot increase the output of one good without decreasing the other
what is the opportunity cost
profit lost when one alternative is selected over another
what is productive inefficiency
producing a combo of goods where you can increase/decrease the output of one good without affecting the other good
where on a PPD are points productively inefficient
any point inside the PPF due to resources not being fully employed
what is productive capacity
the maximum amount of output that can be produced by a given firm/economy
what causes an ouwards shift in PPF
discovery of resources + new inventions
what causes an inwards shift in PPF
emigration + removal of funds
features of a straight PPF
-perfect mobility of factors
-opportunity cost is the same at all points along the PPF
-constant returns to sale
features of a concave PPF
-immobility of factors
-opportunity cost changes
-diminishing returns to sale
-more realistic
definition of productivity
the amount of output produced per unit of input
what are consumer and capital goods
consumer goods- consumption
capital goods- investment
define allocative efficiency
allocating resources in the best way possible to maximise utility
what is utility
the measure of overall satisfaction or wellbeing
what is meant by rational decision making
economic agents responding to economic incentives
what are features of homo economicus
rational, can compute well, logical, maximises utility, self interested
define marginal utility
utility received from purchasing an extra unit of good
define diminishing marginal utility
marginal utility received decreases as consumer buys more units
what is perfect information
where both consumers and producers have access to the same info
define imperfect information
where economic agents do not have access to all relevant info about a market
what is a free market economy
goods and services produced in a system of markets facilitated by the price mechanism
what is a command economy
goods and services produced on the basis of the resource allocation decided on by the state
why do humans not act like homo economicus
computation, imperfect information, time
what is bounded rationality
agents can attempt to apply rationality and reason to their decisions but cannot achieve perfect rationality due to an ‘upper bound’
