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ap micro > Unit 1 > Flashcards

Unit 1 Flashcards

1
Q

Def: individual choice

A

decisions by individuals about what to do and not do

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2
Q

Def: economy

A

a system for coordinating a society’s productive and consumptive activities

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3
Q

Def: market economy

A

the decisions of individual producers and consumers determine the 3 economic questions (what, how, for who to produce) – little government interventions
**Private property rights!!*

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4
Q

Def: command economy

A

industry is publicly owned, central authority makes production decisions

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5
Q

Def: property rights

A

establish ownership & gives individuals the right to trade goods and services with each other

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6
Q

Def: marginal analysis

A

the study of the costs and benefits of doing a little bit more of an activity (vs a little bit less)

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7
Q

what is a resource

A

anything that can be used to produce something else (factors of production)

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8
Q

Def: opportunity cost

A

the value of the next best alternative that you must give up in order to get the item

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9
Q

Def: microeconomics

A

the study of how individuals, households, and firms make decisions and how they interact

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10
Q

Def: economic aggregates

A

economic measures that summarize data across man different markers (employment + inflation rates, GDP, etc)

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11
Q

Def: Positive economics

A

branch of economic analysis that describe the way the economy actually works

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12
Q

Def: Normative economics

A

makes statements about the way the economy should work

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13
Q

land

A

all resources that come from nature (minerals, water, cotton, etc)

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14
Q

labour

A

the effort of workers

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15
Q

entrepreneurship

A

risk taking, innovation, organization for the resources for production

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16
Q

capital

A

manufactured goods used to make other goods and services (machinery, buildings, tools, etc)

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17
Q

What does the production possibilities curve represent?

A

the trade-offs in an economy that produces only two goods - max quantity of one good that can be produced for each possible quantity of the other good

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18
Q

When is an economy considered efficient?

A

when there is no way to make anyone better off without making at least one person worse off

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19
Q

when will an economy achieve productive efficiency?

A

if it produces at a point on the PPC

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20
Q

what is allocative efficiency?

A

if an economy produces at the point along its PPC that makes consumers as well off as possible

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21
Q

what does a PPC look like with an increasing opportunity cost

A

bowed out

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22
Q

what does a PPC look like with an decreasing opportunity cost

A

bowed in

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23
Q

Def: comparative advantage

A

opportunity cost of producing the good is lower then another persons opportunity cost

24
Q

Def: absolute advantage

A

a person can make more of a good in a given amount of time

25
Q

terms of trade

A

indicate the rate at which one good can be exchanged for another

26
Q

Def: utility

A

a measure of personal satisfaction

27
Q

Def: marginal utility

A

the added utlity

28
Q

Def: total utility

A

overall satisfaction that a consumer has from the consumption of a particular good/service

29
Q

what does the marginal utility curve show

A

how marginal utility depends on the quantity of a good/service consumed

30
Q

what is the principle of diminishing marginal utility

A

each additional unit of a good or service consumed adds less to the total utility then the previous unit

31
Q

Def: budget constraint

A

limits the cost of a consumers consumption bundle

32
Q

what are a consumers consumption possibilities

A

the set of all consumption bundles that are affordable

33
Q

Def: marginal utility per dollar

A

additional utility form spending one more dollar on a good or service

34
Q

how do you determine marginal utility/dollar spent on a good

A

marginal utility of one unit / price of one unit

35
Q

what is the optimal consumption rule

A

in order to maximize utility, the marginal utility per dollar spent on each good is the same for the consumer (MU_a/MP_a = MU_b=MP_b)

36
Q

capital vs consumer goods

A

capital: man-made products used to make other consumer or capital goods (indirect)
consumer: products used by consumers (direct)

37
Q

Scarcity

A

resources are limited, wants are unlimited

38
Q

3 economic questions

A

What to produce
How to produce it
Who to produce it for

39
Q

explicit costs

A

the money you spend because of the choice you made

40
Q

implicit costs

A

money lost (opportunity costs)

41
Q

true opportunity cost

A

explicit + implicit cost
EG: take a day off work (could have made $80), spent $20 at movie
$20 is explicit cost
$80 is implicit (lost revenue)
$100 total opportunity cost

42
Q

What does a PPC represent

A

Maximum combinations of the production of 2 goods that can be produced with fixed resources

43
Q

when will the PPC change?

A

when there is a change in either the quality or quantity of resources

44
Q

Def: price

A

amount buyer pays for good/service

45
Q

def: cost

A

amount seller pays

46
Q

productivity

A

a measure of efficiency that shows the number of outputs per unit of inputs

47
Q

def: economic system

A

method used by society to produce and distribute goods and services

48
Q

def: Ceteris Paribus

A

all other conditions remain the same

49
Q

what is the rule for specialization and trade

A

specialize in the good that is cheaper to produce (lower opportunity cost)

50
Q

what is cost-benefit analysis

A

process to measure the benefits of a decision (cost associated with making that decision)

51
Q

def: marginal analysis

A

making decisions based on incremements

52
Q

what is the utility maximizing rule

A

money should be spent so that MU/$ of each good equals each other

53
Q

allocative efficiency

A

optimal distribution of g/s to consumers & optimal distribution of financial capital to firms

54
Q

productive efficiency

A

market optimized to produce the max output from fixed resources

55
Q

what 3 things will shift the PPC

A
  1. change in quantity or quality of resources
  2. change in technology
  3. change in trade
56
Q

what is the role of property rights

A

creates incentives in market economies – establishes ownership and grants people the right to trade goods/services for mutual gain44

ap micro (2 decks)

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