Principles of Economics Flashcards
Economics comes from the Greek word…
“Oikonomia” meaning household management
What is the cost of what you give up for an item?
Opportunity cost
It is the use of marginal quantities in determining an equilibrium
Marginalism
It is the money that has been spent and cannot be recovered
Sunk Cost
The maximum benefits from scarce resources
Efficiency
It is wherein benefits are distributed uniformly
Equality
It is the production of outputs in individual industries and businesses
Microeconomics
It is the production of the national product or output
Macroeconomics
Focuses of Macroeconomics (5)
International Economics
Financial Economics
Labor and Demographic
Law and Economics
It is a small incremental adjustment to a plan of action
Marginal change
It is the idea that market prices reflect both the value of a good to society and the cost of society of making that good
Adam Smith’s Invisible Hand
When a market fails to produce an efficient allocation of resources
Market Failure
The impact of a person’s actions on the well-being of a bystander
Externality
The ability of a single person to influence market prices
Market power
The number of goods and services produced by each unit of labor input
Productivity
It means that goods are limited relative to desires
Scarcity
Most effective use of a society’s resources in satisfying unlimited wants and needs
Efficiency
set of assertions and assumptions are chosen to consist of the main framework of analysis
Construction of a Model
Tries to represent in a quantitative way how economic behavior is influenced by certain relevant events
Simple Mathematical Equation/Expression
Provide a pictorial version of how economics agents behave as their opportunities and constraint change
Graphs
Because of scarcity, every society must have a way of determining…
What commodities to produce
How these goods are made and
For whom they are produced
It describes facts of an economy
Positive economics
It involves judgment in describing the economy
Normative economics
what they do best
specialization
increase in the overall level of prices in the economy
Inflation
A visual model of the economy that shows how dollars flow through markets among households and firms
Circular-Flow Diagram
A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
Production Possibilities Frontier
The ability to produce a good using fewer inputs than another producer
Absolute Advantage
The ability to produce a good at a lower opportunity cost than another producer
comparative advantage
Specialization and free trade will benefit all trading parties, even when some are absolutely more efficient producers
“Theory of Comparative Advantage” from David Ricardo
commodities or services that are used to produce goods and services
Inputs
various useful goods or services that result from production process and are either consumed or employed in further production
Outputs
Factors of Production
Land
Labor
Capital
what is an efficient economy?
one that produces the things that people want at the least possible cost
it occurs when an economy cannot produce more of one good without producing less of the other
Productive Efficiency
Inefficiency and unemployed resources
Inward Shift
Increased in a total output of an economy
Economic Growth; Outward Shift
anything that has already been produced will be used to produce other valuable goods or services over time
Capital Goods
Produced for present consumption
Consumer Goods
Economic Growth happens because of 2 important resources:
Accumulation of Wealth
Technological Advances
economy in which central government either directly or indirectly sets output targets, incomes, and prices
Command Economy
holds that government should interfere as little as possible in the economic affairs and leave economic decision to the private decision making of buyers and sellers
Free Market
where markets direct the detailed activities of day-to-day economic life while government regulates social conditions and provides pensions, health care, and other necessities to the poor families
Mixed economy
a mechanism through which buyers and sellers interact to determine prices and exchange goods and services
Market
coordinates the decisions of producers and consumers in the market
price
harmony between private profit and public interest
the invisible hand
