Scarcity / Choice / Opportunity Cost Flashcards
What are some BASIC economic concepts?
scarcity exists
choices MUST be made
rationing system
scarcity = value
consumer surplus
equity v. efficiency
What is scarcity?
when a resource is limited in supply & demand/ something that is in limited quantity but desired
therefore, scarcity is a function of supply & demand, so if demand is high relative to supply, the resource is then scarce
Why must choices be made?
because scarcity exists choices must be made for the best allocation
choose between competing systems
What are rationing systems?
the system decided on how to manage the scarcity
e.g. lottery
first come first serve
merit-based
What is the relationship between scarcity and value?
something that is scarce is valuable
therefore, scarcity = value = utility
also depends on situation, location & conveniency
What is consumer surplus?
is the difference btw what a person is willing to pay and the actual price
What is the difference btw equity and efficiency?
equity = fairness efficiency = most socially optimal use
what is equitable may not always be most efficient & vice virsa
e.g. lottery = fair chance but not efficient
auction = not fair but efficient
What is economics then?
economics is the study of choices leading to the best possible use of scare resources in order to best satisfy unlimited human needs and wants
Can you explain the diamond/water paradox?
first start with paradox. Paradox = contradictory statement that may be true
margin / marginal = next
demand = marginal benefit (MB) / value of one more
as # of smt increases, MB always decreases
supply = marginal cost (MC) / $ to make 1 more unit
cost DOES NOT EQUAL price
cost = how much $ business used to make unit
price = what consumers pay
Price = is the intersection of supply & demand
What are the 3 basic economic Qs?
What to produce?
How to produce?
For whom to produce?
What are the types of goods and which economic Q do they answer?
What to produce?
capital
consumer
durale
in/non-durable
What are capital goods?
goods used to produce other goods
What are consumer goods?
final product
What are durable goods?
a good that lasts for > 3 years
What are non-durable goods?
a good that lasts < 3 years
What are the What & How Qs classified under?
resource allocation
What are resource allocation terms?
re allocation
overallocation
underallocation
What does reallocation mean?
if a decision made has to be modified bc of a change in amount of goods
What is overallocation?
smt with wrong amounts produces, relative to what is socially desired
What is underallocation?
too few desired goods/services produced
What is the For Whom Q classified under?
distribution of output & input
needs to target audience wants / likes / interests
just for ourselves & trade
What is output?
who is receiving goods
What is input?
who is getting $
What is the relationship between output & input?
peoples output depend on their income
