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ECON 2302 > UNIT 1 > Flashcards

UNIT 1 Flashcards

1
Q

CHAPTER 1 START
what is economics?

A

a social science concerned with making optimal choices under conditions of scarcity

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2
Q

what is a utility?

A

the pleasure, happiness, or satisfaction from obtaining a good or service

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3
Q

what makes microeconomics different than macroeconomics?

A

microeconomics is a discipline that studies the decision-making process of customers, workers, households, and business firms on an individual basis rather than as aggregates

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4
Q

our income comes in what kind of forms?

A

comes in the form of wages, interest, rent, profit, and even government programs

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5
Q

what is a budget line?

A

A curve showing various combinations of two products a consumer can purchase with a specific amount of income.

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6
Q

Which of the following can be stated as potentially true about any economy?

A

Its current choice of position on its production possibilities curve helps determine the curve’s future location.

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7
Q

what is the economic perspective?

A

it is the way economists view the world through scarcity, choice, opportunity cost of economic decisions, use of utility, and marginal analysis; weighing marginal benefits to marginal costs.

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8
Q

what is the goal of rational self-interest?

A

to maximize utility or satisfaction. Firms are rational when they make choices about which products to produce in an attempt to maximize thier profits

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9
Q

what is the scientific method?

A

the procedure for the systematic pursuit of knowledge involving the observation of facts and the formulation of testing hypotheses to obtain theories, principles, and laws

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10
Q

what are economic principles?

A

generalizations about ecnomic behavior that are true for the average person. Of these include the “ceteris paribus,” the assumption that factors other than those considered did not change

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11
Q

what is the difference between positive and normative economics?

A

positive economics are economic statements that are factual while normative involves value judgments, subjective.

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12
Q

what is the economizing problem?

A

limited income and unlimited wants

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13
Q

what is the budget line?

A

it is used to illustrate the greatest combinations of two good that can be purchased with a certain amount of income

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14
Q

know the four factors of production

A
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15
Q

what are the functions of entrepreneurs?

A
  • take initiative
  • make strategic business decisions
  • innovate
  • take risk
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16
Q

what is the purpose of the production possibilities model?

A

it is an economic model that shows different combinations of good and services that society can produce in a fully employed, assuming a fixed availability of supplies of resources and fixed technology. When production is inside the curve, it means that the economy is inefficient

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17
Q

why is the production possibilities curve a curve?

A

the law of increasing opportunity costs is the reason the PPC is a curve. As more of a particular good is produced, its marginal opportunity costs increase

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18
Q

what happens in international trade?

A

enables countires to specialize in the production of goods which they produce more efficiently than other countries, resources are allocated more efficiently

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19
Q

CHAPTER 3 START
a change in demand is represented by a _

A

shift of the demand curve

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20
Q

change in quantity demanded is represented by a _

A

movement along the demand curve

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21
Q

The ability of the competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent is called _

A

the rationing function of prices

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22
Q

The effects on equilibrium price and quantity due to an increase in supply and a simultaneous decrease in demand are shown by __ (caused me confusion)

A

a decrease in equilibrium price and an indeterminate change in equilibrium quantity

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23
Q

what is a market?

A

interaction between buyers and sellers that can be local, national, and international

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24
Q

where is the price discovered?

A

in the interactions between buyers and sellers

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25
Q

explain the law of demand

A

an inverse relationship exists between price and quantity demanded. As the price falls, the quantity demanded rises, and as prices rise, the quantity demanded falls

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26
Q

what is the law of diminishing marginal utility?

A

it refers to the decrease in added satisfaction that results as one consumes additional units of a good or service, ex the second big mac yields less satisfaction than the first

27
Q

when does the income effect occur?

A

the income effect occurs as a lower price increases the purchasing power of money income; this enables the consumer to buy more at a lower price without having to reduce consumption of other goods

28
Q

what is the substitution effect?

A

when a lower price gives the incentive to substitute the lower-priced good for the now relatively higher-priced goods, an example is when the price of beef increases, consumers respond by purchasing more turkey and chicken.

29
Q

what are the determinants of demand?

A
  1. change in consumer tastes and preferences
  2. change in the number of buyers
  3. change in income
    - normal goods; we buy more as our incomes increase
    - inferior goods; goods we buy as our income decreases
  4. change in the prices of related goods
    - complementary goods
    - substitute goods
  5. changes in consumer expectations such as future prices and future income
30
Q

what is the supply schedule?

A

amount producers are willing and able to sell at a given price

31
Q

what is the law of supply?

A

as the price rises, the quantity supplied rises. as the prices fall, the quantity supplied falls, direct relationship

32
Q

what are the shifters of the supply curve?

A
  • change in resource prices
  • change in technology
  • change in taxes and subsidies
  • change in prices of other goods
  • change in producer expectations
  • change in the number of suppliers
33
Q

what is the market equilibrium?

A

also known as the market-clearing price. equilibrium price and quantity are where the supply and demand curves intersect

34
Q

what is productive efficiency

A
  • producing goods in the least costly way
  • using the best technology
  • using the right mix of resources
35
Q

what is allocative efficiency

A
  • producing the right mix of goods
  • the combination of goods most highly valued by society
36
Q

CHAPTER 4. START
what does one mean when the market fails?

A

markets fail to produce the right amount of the product either by overallocation or underallocation

37
Q

what does efficient outcomes require?

A
  • demand curve must reflect full willingness to pay
  • supply curve must reflect all costs of production
38
Q

when is consumer surplus generated?

A

when the consumers’ utility exceeds the price paid

39
Q

when is producer surplus created?

A

when producers receive a price greater than their marginal cost. often their lowest price they are willing to accept

40
Q

what is efficiency loss, or deadweight loss?

A

reductions of combined consumer surplus and producer surplus

41
Q

what is an externality?

A

a cost or benefit accruing to a third party external to the market transaction

42
Q

when does a POSITIVE externality occur

A

The good is underproduced when positive externalities are present. The equilibrium output will be smaller than the efficient output because the consumer is willing to pay a price equal to the consumer’s individual marginal benefit
- too little is produced
- demand-side market failures

43
Q

when does a NEGATIVE externality occur

A

The good is overproduced and the equilibrium output will be greater than the efficient output. This is because the producer, who is not bearing the full cost of production, will be able to produce more at a lower price than the efficient level.
- too much produced
- supply-side market failures

44
Q

how can the government correct NEGATIVE externalities

A
  • direct controls; reduce supply by driving costs of production and would shift the supply curve and reduce output
  • Pigovian Tax: specific tax assessment on the related good, to the extent that the cost of producing the good increases
  • shifts supply curve to the left
45
Q

how can the government correct POSITIVE externalities

A
  • subsidies
  • government provision
46
Q

what is the coarse theorem

A

it suggests that under the right conditions private bargaining can solve externality problems, thus government intervention may not always be necessary

47
Q

describe the optimal reduction of an externality

A
  • officials must correctly identify the existence and cause
  • government failure may occur
48
Q

when does asymmetric information occur

A
  • occurs when one party to a transaction possessed substantially more information than the other party
49
Q

CHAPTER 26 START

A

International trade is a key component in most nations’ economies because it allows growth in the economy

50
Q

what are the principal U.S. exports

A

reflects the fact that the US has a more skilled workforce and also a thriving agricultural industry, also includes
- chemicals
- agricultural products
- consumer durables
- computer software and services
-aircraft

51
Q

what are some principal US imports

A
  • petroleum
  • automobiles
  • metals
  • household appliances
  • computers
52
Q

what are the trade benefits that derive from three facts

A
  • the distribution of natural, human, and capital resources is uneven among nations
  • not all nations have the same degree of technology
  • people have different preferences
53
Q

what is comparative advantage

A
  • self-sufficiency output mix
  • specialization and trade
  • produce the good with the lowest domestic opportunity cost
54
Q

what is the absolute advantage

A

exists when one nation is the most efficient producer of a good, meaning it can produce the good at the lowest price

55
Q

trade with increasing costs

A
  • concave production curve
  • resources not perfectly substitutable
  • incomplete specialization
56
Q

explain how supply and demand affect equilibrium prices and quantities

A

when world price > domestic price
- export surplus
- export supply curve, suppliers would produce more than that demanded by the domestic economy and would then export it to receive the higher world price
when world price < domestic price
- import shortage
- import supply curve

57
Q

what is a tariff

A

is an excise tax on the dollar value, or quantity of an imported good

58
Q

what is a revenue tariff

A

a good that is typically not produced in the domestic country, and they are designed to raise revenue for the domestic country, tend to be fairly low

59
Q

what is a protective tariff

A

applied to goods that do have a domestic competitor and are designed to make the imported good cost at least as much as, or more than, the domestic good, tend to be quite high

60
Q

what is an import quota

A

are another common barrier countries use; a limit on the amount of a particular good that could be imported in a given amount of time, imported good is more expensive than domestic competitor

61
Q

what is a nontariff barrier

A

can include such things as requiring extensive documentation for imported goods, restricting the location available to receive the imported goods, or having unreasonable standards for imported goods

62
Q

what is a Voluntary Export Restriction

A

when foreign firms “voluntarily” agree to limit the number of their exports to a particular country

63
Q

what is an export subsidy

A

slide 21

ECON 2302 (3 decks)

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