Unit #1 Flashcards
Economics
Social science concerned with the efficient use of scarce resources to meet unlimited wants
Scarcity
Unlimited wants but limited resources
Rational self interest
Economists believe that people choose options that give them the greatest satisfaction
Incentives and disincentives
Rewards or punishments that motivate laborers
Opportunity cost
The value of what you must give up in order to do something (trade-off)
Per unit cost
give up/ gain
Law of increasing opportunity costs
As you produce more of any good, opportunity cost increases. Resources for producing both goods are NOT equally suited. PPF graph is concave out from origin.
Law of constant opportunity cost
As you produce more of any good, the opportunity cost will remain constant. Resources for producing both goods are EQUALLY SUITED. PPF is a straight line.
Consumer goods
Goods for direct consumption
Capital goods
Goods used to produce consumer goods. Human capital- knowledge/skills of workers. Physical capital- machines, factories, technology, tools, etc.
Shifters in PPF
- Change in resources
- Change in technology
Absolute advantage
The producer that can produce the most output with the same resources
Comparative advantage
The producer with the lowest opportunity cost
Calculating opportunity costs
Output: OOO = output other over
Input: IOU = input other under
Specialization and trade
Countries are able to consume goods that they are unable to produce (consume outside of PPC)
Terms of trade
A compromise in the quantity of one good for another good. Must be a number in the middle of the opportunity costs for both the sellers and buyers.
Input
A resource used to produce a final good ex. rubber for tire production, hours needed to produce a good, and amount of acres needed.
Input absolute advantage
The producer that requires the LEAST amount of input to produce the same good.
PPC/PPF graph
Represents the trade-offs in the economy
PPF/PPC points meanings
- Along curve = efficiency
- Outside of curve= unattainable
- Inside of curve= inefficiency
Future growth
Plot point along curve more towards capital goods (but not all of the way)
Demand
Different quantities of goods that consumers are willing and able to buy at different prices
Law of Demand
A higher price of a good leads people to a smaller quantity demanded
5 shifters of demand
T= tastes/preferences
R= related goods
I= income
B= buyers
E= expectations (future)
Substitutes
Goods used in place of one another ex. if price of Pepsi falls, demand for coke will decrease.
Complements
Goods used together ex. if the price of peanut butter falls, the demand for jelly will increase
Normal goods
If income increases, demand increases (goods for more wealthy people - more desired)
Inferior goods
If income decreases, demand increases (goods that are cheaper- less desired ex. knock off brands)
Supply
The different quantities of a good that sellers are willing and able to sell (produce) at different prices
Law of supply
A higher price of a good leads people to a larger quantity supplied of the good
5 shifters of supply
I= intervention (government)
R= resources
E= expectations (future)
N= number of sellers
T= technology
What determines equilibrium
A seller and buyer agreement (negotiation)
What is true at equilibrium
Quantity supplied = quantity demanded (supply and demand curves intersect) note: demand is indirect to origin while supply is direct (through origin)
Double shift rule
Either price or quantity will be indeterminate (ambiguous) during a double shift
