Nature and Scope of Economics Flashcards
- How society manages its scarce resources
- Behavior of a producer & a consumer
- How society meets its unlimited wants & needs with its limited resources
ECONOMICS
SOCIETY FACES A SHORT-RUN TRADEOFF BETWEEN INFLATION AND UNEMPLOYMENT.
The __________________ illustrates the tradeoff between inflation and unemployment:
Phillips Curve;
PRICES RISE WHEN THE GOVERNMENT PRINTS TOO MUCH MONEY.
__________ is an increase in the overall level of prices in the economy.
Inflation
A COUNTRY’S STANDARD OF LIVING DEPENDS ON ITS ABILITY TO PRODUCE GOODS & SERVICES.
Standard of living may be measured in different ways:
– By comparing _____________.
– By comparing the ______________________________.
personal incomes; total market value of a nation’s production
When the market fails, the __________ intervene to promote efficiency and equity.
government
MARKETS ARE USUALLY A GOOD WAY TO ORGANIZE ECONOMIC ACTIVITY
An economic system in which economic decisions and the pricing of goods and services are guided by the interactions of a country’s individual citizens and businesses (Investopedia).
Market economy
Allows people to specialize in what they do best
TRADE CAN MAKE EVERYONE BETTER OFF
RATIONAL PEOPLE THINK AT THE MARGIN
Cost vs. Benefit
(additional ______ & additional ________) econ
cost; benefit
(10 Principles of Economics)
Rational behavior for _________________
PEOPLE RESPOND TO INCENTIVES
THE COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT
(Opportunity Cost)
Alternative Foregone
Let go of one option (lagi)
(10 Principles of Economics)
What principle states that there’s no such thing as free lunch!
Laging may kapalit
PEOPLE FACE TRADE OFFS
___________________________: For you to be better off, somebody must be worse off.
Pareto efficiency principle
The ________________ of an item is the next best alternative choice that you give up to obtain that item.
What’s important to you
opportunity cost
__________________ – the ability to produce goods and services at a lower opportunity cost, not necessarily at a greater volume or quality (Investopedia).
Comparative advantage
____________________ – show how countries can gain from trade by specializing in producing and exporting the goods that they can produce more efficiently than other countries (Investopedia).
Absolute advantage trade
________ increases the variety of goods and services available
Trade
_________ can make everyone better off
Trade
“______________” – force between buyer and seller
Government → health, education, & security
Invisible hand
________ - A place where parties can gather to facilitate the exchange of goods and services (Investopedia).
Market
_____________ (father of classical market)
No government intervention
Adam Smith
Therefore, how much each worker can ______________________ determines overall living standards within a nation.
produce per hour of work
GOVERNMENTS CAN SOMETIMES IMPROVE MARKET OUTCOMES
Market failure occurs when the market fails to _________________________.
allocate resources efficiently
The more money there is available within an economy, the more people are _____________________________ (inflation), therefore, each dollar is buying less and less.
willing to pay for goods and services
Philipps curve states:
Lower prices are the result of high unemployment and
Higher prices are the result of low unemployment.
___________________ – behavior ng tao/ society
SOCIAL SCIENCE
Scarcity and choice:
- Resources are _____
- Choices must be made
- There is no such thing as free lunch
- Opportunity cost “___________________”
scarce; alternative foregone
Laissez faire
The Invisible Hand
No adjustment for shortage or surplus
The Command System
The incentive problem
The Command System
Set output targets for all goods
The Command System
System was a failure
The coordination problem
The Command System
Soviet Union, Eastern Europe, China
The Command System
1776 Wealth of Nations by Adam Smith
Unity of private and social interest
The Invisible Hand
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- Efficiency
- Incentives
- Freedom
Market System Characteristics
- _____________
- Freedom of enterprise and choice
- Self-interest
- _______________
- Markets and prices
- Technology and capital goods
- _______________
- Division of labor
- Geographic specialization
- Use of money
- ____________________
Private property; Competition; Specialization; Active, limited government
Private ownership
Markets
The MARKET SYSTEM
Government ownership
Central planning board
The COMMAND SYSTEM
The Market System and the Circular Flow
Set of institutional arrangements
ECONOMIC SYSTEMS
Coordinating mechanism
ECONOMIC SYSTEMS
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- Who owns the factors on production
- What method directs economic activity
A ______________________ is constructed by drawing two perpendicular lines: a vertical axis (the Y-axis) and a horizontal axis (the X-axis). Each axis is a measuring scale.
Cartesian coordinate system
A ______ is a two-dimensional representation of a set of numbers, or data.
graph
A ______________ shows how a single measure or variable changes over time.
time series graph
Production Possibilities Model
Illustrate production choices
Assumptions:
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Full employment
Fixed resources
Fixed technology
Two goods
SOCIETY’S ECONOMIZING PROBLEM
Scarce resources– FACTORS OF PRODUCTION:
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Land
Labor
Capital
Entrepreneurial Ability
Macro vs. Micro
Aggregate
Economy as a whole
Macroeconomics
True or False
“What is?” Ex. 20,000 income for a -
Objective
Facts
Positive Economics
Macro vs. Micro
Individual Units
Individual behavior of the seller and consumer
Microeconomics
Subjective
Other than the fact
“What ought to be done”
Normative Economics
- Economic principles
- Simplification of reality
- Graphical expression
Cause and effect;
Other-things-equal assumption
- Individuals and utility
- ## Firms and profit
Rational self-interest; Desired outcomes
Marginal analysis
- Marginal benefit
- Marginal cost
- Marginal means _____
- ____________________________________
extra;
Comparison of marginal benefit and marginal cost.
The Economic Perspective
Thinking like an economist
Key features:
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Scarcity and choice;
Purposeful behavior;
Marginal analysis
