* Test 1: Ch1-6 Flashcards
What are the Three Central Coordination Problems
Three Central Coordination Problems any economy must solve are: * _What_ to produce * _How_ to produce it * For _Whom_ to produce it
marginal cost is …
Marginal Cost is the additional cost to you over and above the costs you have already incurred
Consider, for example, attending class. You’ve already paid your tuition; it is a sunk cost. So the marginal (or additional) cost of going to class does not include tuition.
sunk costs …
sunk costs—costs that have already been incurred and cannot be recovered
marginal benefit is …
Marginal Benefit is the additional benefit above what you’ve already derived
The marginal benefit of reading this chapter is the additional knowledge you get from reading it. If you already knew everything in this chapter before you picked up the book, the marginal benefit of reading it now is zero.
Opportunity Cost is …
Opportunity Cost is the benefit that you forgo by not choosing another option
productive efficiency…
productive efficiency—achieving as much output as possible from a given amount of inputs or resources ch2, p28
production possibility curve …
production possibility curve (PPC) is a curve measuring the maximum combination of outputs that can be obtained from a given number of inputs
(Price elasticity of demand/supply) elastic is…
elastic : the percentage change in quantity is greater than the percentage change in price (E > 1)
(Price elasticity of demand/supply) inelastic is…
inelastic : the percentage change in quantity is less than the percentage change in price (E
Label the elasticity of the demand curves.
Income elasticity:
necessity — …
luxury — …
Normal goods — …
inferior goods — …
Income elasticity of demand =
…
….
Income elasticity:
necessity — a good that has an income elasticity between 0 and 1
luxury — a good that has an income elasticity above 1
Normal Goods—goods whose consumption increases with an increase in income
Inferior Goods — goods whose consumption decreases when income increases
Income elasticity of demand =
Percentage change in demand
Percentage change in income
What is PPC?
Production Possibility Curve: curve measuring the maximum combination of outputs that can be obtained from a given number of inputs
comparative advantage is ….
comparative advantage – resources which are better suited to the production of one good than to the production of another good
i.e. Gunsmiths producing Guns vs Farmers producing Butter
