Unit 1 Basic Economics Flashcards
Which of the following is an example of a resource?
I. Petroleum
II. A factory
III. A cheeseburger dinner
I & II only
Suppose that you prefer reading a book you already own to watching TV and you prefer watching TV to listening to music. If these are your only 3 choices, what is the opportunity cost of reading?
Watching TV
Which of the following is/are normative?
I. The price of gasoline is rising
II. The price of gasoline is too high
III. Gas prices are expected to fall in the near future
II only
Which of the following situations represent(s) resource scarcity?
I. Rapidly growing economies experience increasing levels of water pollution
II. There is a finite amount of petroleum in the physical environment
III. Cassette tapes are no longer being produced
I & II only
Economic
The study of scarcity and choice
Individual Choice
Decisions by individual about what to do and what not to do
Ex: Target has stuff you like, you like everything but can’t buy everything therefore have to make choices
Economy
A system that coordinated choices about production w/choices about consumption and distributes goods/services to the people who want them
US has a market economy which means…
Production and consumption are the result of decentralized decisions by many firms and individuals
- no central authority say what to produce or where to ship it
- individual producer decides what they think is profitable and consumers choose to buy/not buy
Command Economy
Industry is publically owned and there IS a central authority making production and consumption decisions
What economy did the Soviet Union practice in 1917 and 1991? What happened?
Command Economy
- didn’t work well because consumers didn’t want the products being produces and there were no materials to use to make products
Incentives
Rewards or punishments that motivate particular choices
- market economy can lower or raise price
Property Rights
Establish ownership and grant individuals the right to trade goods and services with one another
Ex. Own lake therefore takes care of lake pollution for its potential profit
Marginal Decisions
Decisions of what to do with next ton of pollution, hour of free time, next dollar, etc.
- compares cost vs benefits
Marginal Benefit
Gain from doing something one more time
Marginal Cost
Cost of doing something one more time
Marginal Analysis
The study of the costs and benefits of doing a little not more of an activity vs a little bit less
Examples of limiting factors…
Time and income
Resource
Anything that can be used to produce, sometimes called factor of production
The 4 types of Resource
Land: timber, materials, H2O
Labor: effort of workers
Capital: machinery, buildings, tools, etc
Entrepreneurship: risk taking, innovation, and organization of resources for production
A resource is scarce when…
There’s not enough to satisfy the society’s needs/wants
- ex. Oil/coal, clean air, H20; society must make a choice
Opportunity Cost
What you must give up in order to get the next best thing
- all costs are opportunity costs
- ex. College- state vs. local college
Microeconomics
The study of how individuals. Households and firms make decisions and how those decisions interact
Macroeconomics
Concerned with the overall ups and downs of the economy
- focuses on Economic aggregates
Economic Aggregates
Economic measures that summarize data across many different markets
Positive Economics
Branch of economic analysis that describes the way the economy ACTUALLY WORKS
Normative Economics
Makes prescriptions about the way the economy SHOULD WORK
Economic Models
Provide simplified representations of reality (ex. Graphs and tables)
- good for answering what if questions
Media coverage….
Exaggerates the views shared among economists (matter or boring/amusing content)
Economics tied to politics therefore have…
An incentive to find and promote economists who profess those opinions
In reality economists disagree due to…
- difference in values
- differences in the way economic analysis is conducted can lead to different conclusions
What is an example of a resource:
- petroleum
- factory
- cheese burger dinner
- petroleum and factory
Which is not any example of scarcity
Not enough physicians
Business Cycle
The alternation between economic downturns, known as recessions, and economic upturns, known as expansions
Depression
Very deep and prolonged downturn
- last one was Great Depression -1930s
Recessions
Periods of economic downturns when output and employment are falling
Expansions(Recoveries)
Periods of economic upturns when output and employment are rising
- recessions last about 11 months
- expansions about 58 months
Employment
of people who are currently working for pay in the economy
Unemployment
of people who are actively looking for world but aren’t currently employed
Labor Force
The sume of employment and unemployment
Unemployment Rate
The percentage of labor force that is unemployed
- good indicator of what conditions are like in the job market
- even in most prosperous times there is some unemployment
Business cycle also about OUTPUT
The quantity of goods and services produced
- in business cycle, the economy’s level of output and its unemployment move in opposite directions
Output
The quantity of goods and services produced
Aggregate output
The economy’s total production of goods/services for a given time period
Inflation
Rising overall price level
Deflation
Falling overall price level
Issue with inflation
Money won’t be worth as much therefore people stop holding cash
Issue with deflation
Dollar will buy more than before therefore people will hold on to it rather than investing in new factories and other productive asserts