Unit 1 Flashcards

1
Q

MACRO-economics

A

Studying the whole economy

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2
Q

Marginal Utility

A

Inputs are valuable because the end product brings utility

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3
Q

Water-Diamond Paradox

A

Why are diamonds more expensive than water? Scarcity of diamonds and surplus of water.

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4
Q

Keynesian Economics

A

Govts should step in and smooth out business cycles

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5
Q

Monetarism

A

Govt should maintain consistent growth in the supply of money to smooth out cycles

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6
Q

Austrianism

A

Focuses heavily on subjectivism and how prices communicate widely dispersed knowledge.

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7
Q

Classical Economics

A

Aristotle to Karl Marx
Focused on the production of goods; more inputs = higher value.
“Labor Theory of Value”

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8
Q

Neoclassical Economics

A

3 economists (separate in Europe) developed the theory that value is derived from marginal utility.

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9
Q

The Marginal Revolution

A

Split classical and neo-classical economics

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10
Q

5 Key Economic Assumptions

A

1) scarcity
2) Due to scarcity, choices must be made (trade off)
3) Everyone’s goal is to make choices that maximize their satisfaction (self interest)
4) Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice

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11
Q

Opportunity Cost

A

Most desirable alternative given up when you make a choice.

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12
Q

Allocate

A

Distribute

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13
Q

Consumer Goods

A

Created for direct consumption

Ex) pizza, video games

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14
Q

Capital Goods

A

Created for indirect consumption. Things companies buy to make consumer goods.
Ex) oven, blenders

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15
Q

4 factors of production

A

1) LAND - all natural resources that are used to produce goods and resources
2) LABOR - any effort a person devotes to a task for which a person is paid.
3) CAPITAL - physical and human
4) ENTREPRENEURSHIP- ambitious leaders that combine the other factors of production to create goods and services.

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16
Q

Physical Capital

A

Tools we use to create other goods

17
Q

Human capital

A

Knowledge, skills and education (mental tools)

18
Q

Constant Opportunity Cost

A

Resources are easily adaptable for producing either good. Result is a straight line PPC (not common)

19
Q

Increasing Opportunity Cost

A

As you produce more of any good, the opportunity cost ( forgone production of another good) will increase.

20
Q

Productive Efficiency

A

Products are produced with less cost. This is any point of the PPC

21
Q

Allocative Efficiency

A

Products being produced are the ones most desired by society. This optimal point on the PPC depends on the desires of society.

22
Q

Absolute advantage

A

Producer that can produce the most output of requires the least amount of inputs ( resources)

23
Q

PPC Curve shifters

A

1) change in resource quantity or quality
2) change in technonlogy
3) change in trade

Decrease

1) destruction of resources (ex power plant blows up)
2) unemployment dot inside graph

24
Q

Output

A

1x =y/x

25
Q

Input

A

1x = x/y

26
Q

Law of Demand

A

There is an INVERSE relationship between price and quantity demanded.

27
Q

Substitution effect

A

If the price goes up for a product, consumers buy less of that product and more of a substitute project.

28
Q

Income effect

A

If the price goes down, the purchasing power increases for consumers (wealthier)

29
Q

The law of diminishing marginal utility

A

That as you consume anything, the additional satisfaction that you will receive will eventually start to decrease.

30
Q

Ceteris paribus

A

When this assumption is dropped, movement no longer occurs along the demand curve.
This is a change in demand NOT a change in quantity demanded.
PRICE DOES NOT SHIFT THE CURVE
it only causes movement along the curve.
(Regular Demand Curve)

31
Q

5 Shifters of Demand

A

1) Tastes and preferences
2) # of consumers
3) Price of related goods
4) Income
5) Future expectations

32
Q

Complements

A

2 goods that are bought and used together.

Ex) if the price of hot dogs falls, demand for hot dog buns will….

33
Q

Law of Supply

A

Direct relationship between price and quantity supplied.

As price increases quantity producers make increase

34
Q

5 shifters of supply

A

1) Prices/ availibity of inputs/resources
2) Number of sellers
3) Technology
4) Government Action : Taxes and subsidies
5) Expectations of Future profit

35
Q

Subsidy

A

Govt payment that supports a business or market. Subsidies cause the supply of a good to increase

36
Q

Increase in supply…

A

Increases quantity, decreases price

37
Q

Decrease in supply…

A

Price didn’t change but there is LESS product being produced. Price will eventually go up
BUT IT IS NOT AN DETERMINATE BUT AN EFFECT.

38
Q

Disequilibrium

A

2 kinds
Shortage: when quantity supply is less than quantity demand. Happens when items are too cheap.
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