test 1 Flashcards
what is economics
how society uses its limited resources to satisfy its unlimited human wants.
what is the problem with economics
resource scarcity
why is economics a social science
concerned with how individuals, groups, societies respond to scarcity
what is macroeconomics
study of the behaviour of the economy as a whole. Nation-wide. Focuses on the aggregate economic values like inflation, national income and outputs. Measured by the gross domestic product (GDP) or gross national product (GNP) and unemployment
what is microeconomics
how specific industries function within the economy, individual units (firms, households)
what is opportunity cost
resources are scarce so every choice involves giving up another opportunity. Value of the best alternative that must be given up
what is the OC formula
OC= explicit cost + implicit cost - sunk cost
what is the explicit cost
direct outlay or spending of $ on a choice
EX.: decision to attend uni is the tuition fees or transportation costs that you must pay
what is the implicit cost
not a direct outlay, represents a value given up
EX.: while in uni, you give up the salary that you could be earning if you didn’t decide to attend
what is the sunk cost
irreversible cost irrelevant to a decision
EX.: Thomas wants to buy a resto, spends 1500$ to see if he can afford it, turns out secant afford it so that 1500$ is lost
what is the positive economic analyses
based on statements that can be tested by observing the facts . View the world as it is
what is the normative economic analyses
based on value judgement. View the world as it should be
what is scarcity
when human wants exceeds the productive capacity of existing limited resources
what are human wants
goods and services (commodities) that we wish to consume and that have value in return
what are resources
the inputs used in the production of the things that we want
what are natural resources (land)
nonhuman gifts of nature
what is labor
productive contributions made by workers
what is human capital
education and training of workers (increases productivity)
what is physical capital
available stocks of factories, equipment, machinery, and infrastructure used in production. Man-made
what is entrepreneurship
Human Resources that perform the functions of risk taking, organizing, and managing the other factors of production
is financial capital a productive resource
NO. it is the financial assets that measure one’s ownership and access to goods, services, and physical capital
is financial capital a productive resource
NO. it is the financial assets that measure one’s ownership and access to goods, services, and physical capital (money, bonds, stocks)
what are factor incomes
amount of payment or reward received by each type of resource for it’s contribution to procution
what is the factor income for land
rent
what is the factor income for human resource (labor and human capital)
wages and salaries
what is the factor income for physical capital
interest and dividends
what is the factor income for entrepreneurship
profit
what is the production possibilities curve
a graph of all the possible production combinations of two goods or services that can be produced. Trade off between two goods. Measured over a specific time period. No technological change over that time frame. No increase or decrease in the quantity or quality of the resource
what is a production possibilities schedule
table that can be graphed and converted into a PPF/PPC
what does it mean if a point is above and below the PPC
above: unobtainable, resources are scarce
below: can be produced but inefficient because of unemployment. Possible to produce more of one good without decreasing the quantity of the other good
how to calculate OC from PPC
OC=what we give up/what we get
formula of OC of cars (with wheat)
OCcars=change in wheat/change in cars
formula of OC of wheat (with cars)
OCwheat=change in cars/change in wheat
what is a market
meeting place or a set of rules that connect two groups of economic agents in the exchange of goods and services
what is a demand
quantities of a specific good or service that consumers in a particular market are willing to purchase at various possible prices, ceteris paribus
what is the law of demand
there is an inverse relationship between the price of any good or service and its quantity demanded
downward slope
what are the three forms of market demand
- market demand schedule (table)
- market demand curve (graph)
- market demand equation *not on test
what is a supply
quantities of a specific good or service that firms are willing to sell at various possible prices
what is the law of supply
there is a direct relationship between the price of any good or service and its quantity supplied
upward slope
what are the free forms of market supply
- market supply schedule
- market supply curve
- market supply equation
what is a market equilibrium
- putting supply and demand together
- point where quantity supplied and demanded are equal
what are the two dimensions of the market equilibrium
- equilibrium price (P*): price where Qs=Qd
2. equilibrium quantity (Q): quantity bought and sold at the P
what is a market disequilibrium
- Qd is not equal to the Qs at any price
- when firms want to supply more or less of a good or service than buyers want to purchase (Qd>Qs, Qd
what are the two cases of market disequilibrium
- excess supply (surplus): Qs exceeds Qd at any price
(Qs-Qd=positive number) (P goes down) (P>P*) - excess demand (shortage): Qs is less than Qd
(Qs-Qd=negative number) (P goes up) (P<p></p>
what does productive efficient mean
when all available resources are used fully and efficiently in a way that maximizes the economy’s total output of goods and services. Impossible to produce more of one good without decreasing the quantity of the other good
what is allocative efficiency
when the one production combo of goods and services most highly valued by society is produced
what are commodities
goods and services
-goods: standard, physical/tangible goods
digital goods
-services (intangible items)
what are standard/physical goods
tangible and can be touched, rival goods (cannot be used by more than 1 person at the same time)
what are digital goods
stored and transferred in digital form, non-rival (your whole family is watching Netflix at the same time)
what are services
intangible forms of work done for others (educational services)
what is a shift in demand
increase in demand, which means the P* also goes higher \ (second one)
vice versa
what are the determinants of demand
income tastes and preferences price of related goods expectations population (number of buyers)
what is a shift in supply
increase in supply, which means the P* goes down // (second one)
vice versa
what are the determinants of supply
costs of inputs technology and productivity taxes and subsidies price expectations number of firms in the industry
