Unit 1 Flashcards

1
Q

Positive statement

A

Claim that attempts to describe the world as it is

FACT

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2
Q

Normative statement

A

Claims meant to prescribe how the world should be

OPINION

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3
Q

Economic system

A

An organized way of providing needs and wants to a society

Infinite demands, finite resources

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4
Q

3 Big Questions of Economics

A
  1. WHAT to produce
  2. HOW to produce it
  3. FOR WHOM to produce it for
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5
Q

3 economic systems

A

Traditional, command , market

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6
Q

Describe a traditional economy

A

The allocation of scarce resources and other economic activity stems from tradition
Roles are defined by customs

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7
Q

Advantages/disadvantages of a traditional economy

A

Advantages:

  • everyone has a part
  • jobs are filled
  • everyone gets something

Disadvantages:

  • no room for innovation or improvement
  • dependent on the environment
  • jobs aren’t given based on skill, if someone is bad at their job, they won’t be productive
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8
Q

Command economy

A

A central authority (government) decides what, how and for whom to produce
People have little choice
Ex. France under Louis XIV, North Korea, Soviet Union

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9
Q

Advantages and disadvantages of a command economy

A
Advantages:
-everyone gets something
-efficient
Disadvantages:
-no say in what you want
-easily corrupt
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10
Q

Market economy

A

People and private firms decide what, how, and for whom to produce
Markets must exist in this economy
Examples: Walmart, BK, Ugg

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11
Q

Advantages and disadvantages of a market economy

A
Advantages: 
-able to target who you want
-can make own decisions to benefit own business
-improvement
Disadvantages:
-market failure can lead to crisis
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12
Q

Mixed economy

A

An economic system that adopts concepts from both command and market economies
All world economies are mixed to some degree

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13
Q

What did Adam Smith believe about economy?

A
  1. Self interest + competition (+ a little bit of morality) =best economic system
  2. Invisible hand
  3. Division of labor
  4. A country’s wealth is not a measure of how much gold or silver it has, but how many goods it produces
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14
Q

Division of labor (specialization)

A

-everyone works in a field where they have a comparative advantage
-people use their income to purchase goods
Advantages: if people are skilled, they will make innovations

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15
Q

Private property rights

A

Rights granted by the government

  1. Right to use the good
  2. Right to earn income from the good
  3. Right to transfer the good to others
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16
Q

Mixed economy

Why is it the best economic system?

A

An economic system in which both the state and private sector direct the economy
It is the best economic system because a central authority is directing somewhat, but individual can make their own decisions

17
Q

Expropriation

A

Taking over property

18
Q

What is the relation of protection from expropriation and GDP per person?

A

A strong positive relation

19
Q

Why are property rights important in a market economy?

A

Control the free market by establishing rules

20
Q

Production Possibilities Frontier

A

Shows the trade off in production of 2 goods

21
Q

Factors of production (other term)

A

Aka inputs
The resource required to produce the goods that are demanded by the consumer
LAND, LABOR and CAPITAL

22
Q

Production

A

creating goods and services

23
Q

Factors of production: LAND

A

Natural resources are scarce

24
Q

Factors of production: LABOR

A

Aka Human capital

People with efforts, abilites, and skills

25
Factors of production: CAPITAL
Capital goods, aka capital stock & physical capital | tools, equipment, machinery and factories used in the production of goods and services
26
Input
Factors of production (land, labor, capital) or time
27
Output
A good or service being create
28
What is the difference between a bowed out PPF and a straight PPF
Straight: constant cost model, equally adaptable resources Bowed: increasing cost, specialized resources
29
Absolute advantage vs comparative advantage
Absolute: compares the productivity Comparative: compares the opportunity cost, who has the lowest OC
30
Can something have a double AA? A double CA
There can be a double AA but not a double CA
31
How to calculate OC with Inputs
Amount produced/amount lost
32
How to calculate OC with Outputs
Amount lost/amount produced
33
Resources in a market economy are commonly allocated by...
The price system
34
An outward shift in the production Possiblities curve of am economy can be caused by an increase in
Output
35
A nation is producing at a point inside its PPF, what is a possibility of this outcome?
The nation has experienced an economic recession and has unemployment