Microeconomics Flashcards
1
Q
Economics
A
the study of human efforts to satisfy what appear to be unlimited and competing wants through the careful use of relatively scarce resources
2
Q
scarcity
A
we have unlimited wants but limited resources
3
Q
economics is the study of _____.
A
choices
4
Q
microeconomics
A
study of small economic units such as individuals, firms, and industries
5
Q
macroeconomics
A
study of the large economy as a whole or economic aggregates
6
Q
theoretical economics
A
use of the scientific method to make generalizations and abstractions to develop theories
7
Q
policy economics
A
theories applied to fix problems or meet economic goals
8
Q
positive statements
A
based on facts. avoids value judgments. (what is)
9
Q
normative statements
A
includes value judgments. (what ought to be)
10
Q
5 key economic assumptions
A
- society has unlimited wants and limited resources (scarcity)
- due to scarcity, choices must be made. Every choice has a cost. (trade offs)
- everyone’s goals are to make choices that maximize their satisfaction. (self interest)
- everyone makes decisions by weighing the marginal cost and marginal benefits of every choice.
- real life situations can be explained and analyzed through simplified models and graphs.
11
Q
marginal analysis
A
making decisions based on increments
12
Q
trade-offs
A
all alternatives we give up when we make a choice.
13
Q
opportunity cost
A
most desirable alternative we give up when we make a choice
14
Q
utility
A
satisfaction
15
Q
marginal
A
additional
16
Q
allocate
A
distribute
17
Q
price
A
amount buyer pays
18
Q
cost
A
amount seller pays to produce a good
19
Q
investment
A
money spent by businesses to improve their production
20
Q
consumer goods
A
created for direct consumption
21
Q
capital goods
A
created for indirect consumption
22
Q
four factors of production
A
- land
- labor
- capital
- entrepreneurship
23
Q
profit=
A
revenue-costs
24
Q
economic system
A
the method used by a society to produce and distribute goods and services
25
three economic questions
1. goods and services should be produced?
2. how should these goods and services be produced?
3. who consumes these goods and services?
26
three types of economic systems
1. centrally planned (command) economy
2. free market economy
3. mixed economy
27
centrally planned economy
communism
1. the government owns all resources
2. the government answers all three economic questions
28
why do centrally planned economies face problems of poor-quality goods, shortages, and unhappy citizens?
little incentive to work harder and central planners have a hard time predicting preferences
29
Explain why economists say there is no such thing as a "free" lunch.
Someone has to pay for the production or service, so you may get an item or service free, but someone has to pay for it.
30
The cause of scarcity
The wants are unlimited but the resources are limited. It is not a scarcity of money but a lack of resources.
31
Why is economics a social science?
it deals with the behavior of people as they cope with the fundamental scarcity.
32
need
a basic requirement for survival
33
want
means of expressing a need
34
land
gifts of nature or nature resources
35
capital
tools, equipment, factories
| financial capital- money used in production
36
labor
people with all their efforts, abilities, and skills
37
entrepreneur
a risk taker in search of profits who combines the resources of land, labor, and capital to produce new products
38
production
process of creating goods and services with the combined uses of capital, entrepreneurship, labor, and land
39
Gross Domestic Product
dollar value of all final goods, services, and structures produced in one year with labor and property supplied by residents. The largest measure of a nation's income
40
identify the economic concept illustrated by the production possibilities frontier
opportunity cost. when resources are fully used, a country can produce anywhere along its production frontier. when all resources are not fully used, the country cannot reach its potential
41
Production Possibilities frontier
diagram representing combinations of goods and services an economy can produce when all resources are used
42
cost-benefit analysis
a way of thinking that compares the costs of an action to its benefits
43
free enterprise economy
an economic system in which consumers and businesses rather than the government jointly make the majority or the economic decisions
44
standard of living
the quality of life based on the possession of luxuries and necessities that make life easier
45
distinguish between free products and economic products
free product- plentiful and has neither owner nor price (air, sunshine)
economic product- a good or service that is relatively scarce and transferable to others
46
why are services excluded when the wealth of a nation is measured?
services are intangible but wealth is not
47
why is productivity important
In a world of relatively scarce resources, productivity is a key issue. Economies benefit when productivity increases.
48
distinguish between product markets and factor markets
individuals earn their income in factor markets and spend their income in product markets
49
why is economic education important?
helps people become better decision makers and it helps us understand the political and social issues operating around us
50
economic product
goods and services that are useful, relatively scarce and transferable to others. these command a price
51
good
a tangible commodity like a book or car
52
consumer good
intended for final use by individuals
53
capital good
a manufactured good used to produce other goods
54
service
work that is performed for someone. cannot be touched
55
value
something that has worth that can be expressed in dollars and cents
56
paradox of value
the apparent contradiction between the high value of non-essentials and the low value of essentials
57
utility
the capacity to be useful to someone
58
wealth
the sum of those economic products that are tangible, scarce, useful, and transferable from one person to another
59
market
a location that allows buyers and sellers to deal readily in a certain economic product
60
factor market
markets where productive resources are bought and sold (earn)
61
product market
markets where producers offer goods and services for sale (spend)
62
productivity
efficient use of productive resources
63
division of labor
specialization when workers perform fewer tasks more frequently; same as specialization
64
human capital
the sum of skills, abilities, health, and motivation of people
65
economic interdependence
the action of one part of the world or country have an impact on what happens elsewhere
66
main strengths and weaknesses of a traditional economy
strengths- everyone knows what role they play, life is stable, predictable, and continuous
weaknesses- new ways of doing things are discouraged which leads to lack of progress and lower standard of living
67
5 major weaknesses of the command economy
1. not designed to meet the needs/wants of people, rather for the state
2. lacks incentives for hard work
3. requires a large, decision making bureaucracy
4. not flexible to deal with day-to-day problems
5. people with new ideas find it difficult to get ahead
68
Explain how consumers influence a market economy
people's decisions act as votes for a product. More votes show producers what goods and services to offer. producers are always looking for goods and services that people will buy, so consumers influence production
69
describe how a market economy, traditional economy, and a command economy adapt to change
traditional economies don't change much because new ways of doing things are discouraged which leads to lack of progress and lower standard of living. command economies can change relatively swiftly. market economies take a longer time to adapt to change
70
economy
an organized way of providing for the wants and needs of people in a society
71
traditional economy
allocation of scarce resources and almost all other economic activity stems from ritual, habit, and custom
72
command economy
a central authority makes the most of the WHAT, HOW, and FOR WHOM decisions
73
market economy
people and firms act in their own best interests to answer the WHAT, HOW, and FOR WHOM questions. Buyers and sellers exchange goods and services in a marketplace
74
7 major economic goals that Americans agree on
1. freedom to make decisions
2. efficiency
3. equity of opportunities
4. security
5. full employment
6. price stability
7. growth
75
objective of social security
a federal program that provides disability and retirement benefits that covers most working people
76
explain how any two of the 7 major economic goals might conflict
increase in minimum wage may increase economic equity, but that may raise unemployment and restrict employer's freedom to pay fair wages
77
explain the importance of setting economic goals
resources can be efficiently and effectively used to solve the problem of scarcity while meeting needs and wants. economic goals serve as benchmarks that help people determine which economic system meets their needs
78
inflation
an income that does not increase even though prices rise
79
fixed income
an income that does not increase even though prices go up
80
state how people and businesses benefit from economic freedom
allows people to choose their job, employer, and uses for their money. it allows businesses to choose where and how they produce. it is one of the cornerstones of american society
81
importance of an entrepreneur in a free enterprise economy
they organize and manage the other 3 factors of production- land, labor, and capital in order to seek profit. take risks to start new businesses which create new products, greater competition, more production, higher quality, and lower prices
82
how does the government act as a protector, provider and consumer, regulator, and promoter of national goals
protector-enacts and enforces laws that make products safe, accurately advertised, and have a low environmental impact
provider/consumer-supplies defense supplies and consumes products to run the nation
regulator- oversees interstate and international commerce, communications, energy, and banking
promoter- carries out the will of the people to carry out their goals
83
capitalism
system in which private citizens own the factors of production
84
competition
the struggle among sellers to attract consumers while lowering costs
85
voluntary exchange
the act of buyers and sellers freely and willingly engaging in market transactions. both buyers and sellers get something they believe has more value than the money or products given up
86
private property
people have the right and privilege to control their possessions as they wish which gives people incentives to work, save, and invest
87
profit
the extent to which persons or organizations are better off at the end of the period than the beginning
88
profit motive
people are free to risk their savings or any part of their wealth in a business venture
89
consumer sovereignty
the buyer rules the maket
90
mixed economy
free enterprise market economy where people carry on their economic affairs freely, but are subject to some government intervention and regulation
91
modified private enterprise economy
same as mixed economy
