Topic 1 Flashcards
Scarcity
Unlimited wants and needs but limited resources
Command Economy
Government owns the facotrs of productions and decides what, how to produce and who gets it.
Advantage: Prioitize social welfare instead of profit
Disadvantage: Fewer Freedom
Four Factors of Production
Capital
Entrepreneurship
Land
Labour
Free market economy
Privately own businesses for profit
Disadvantage: Doesn’t provide public goods or services, more income inequality.
Mixed Economy
Individuals own factors of production but government regulates monopolies, redistribute income, and provides public goods.
Opportunity Cost
The value of the next best alternative that must be given up in order to obtain something else
Law of increasing cost
More of a product is produced, the more its opportunity cost
Constant opportunity cost
Same amount of resources to produce two things
Absolute advantage
Better at producing the product than the other
Calculating per unit opportunity cost
Units Sacrificed / Units gained
Good x = Change in Good Y production / Change in Good X production
Amount of time required to make 1 unit of Good X / amount of time required to make 1 unit of Good Y
Comparative Advantage
Which has the lower opportunity cost, what they need to specialize in
Terms of Trade
Acceptable range for trade
Cost-Benefit Analysis
Process of weighing all the costs of an action against all the benefits of action
Marginal Analysis
Making decisions by looking at the marginal benefit and marginal cost
Law of Diminishing Marginal Utility
Additional utility decreases per unit consumed
