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
General goal of Price stability:
When the overall price level is changing if at all
Economic Growth
An increase in the max amount of goods and services an economy can produce
Trade
When individuals provide goods and services to others to receive goods and services in return
Gains from trade
People can get more of what they want through trade than they could if they tried to be self-efficient
- increase in output is due to specialization
Specialization
Each person specializes in the task that they are good at performing
Comparative Advantage
the advantage conferred by an individual is the opportunity cost of producing the goos is lower for that individual than for other people
Absolute advantage
The advantage conferred by the ability to produce more of a good with a given amount of time and resources
Market
A group of producers and consumers who exchange ea food or service for payment who exchange a good ro service for payment
Competitive market
Market in which there are many buyers and sellers of the same good/service, non of whom an influence the price of which te good/service is sold
Demand Schedule
A table that shows how much of a good or service consumers will want to buy at different prices
Quantity demanded demanded
The actual amount of a food a consumer is willing to buy at some specific price
Demand Curve
A graphical representation of the demand schedule. It shows the relationship between quantity demanded and price
Law of demand
A higher price of a good all other things being equal. Quantity of that good price increases while quantity demanded decreases
Change in demand
A shift of the demand curve, which changes the quantity demanded at any given time
Movements along the demand curve
A change in the quantity demanded of a food that is the result of a change in the good’s price
5 factors that shift demand
- Prices of related goods/services
- Income
- Tastes
- Expectations
- Number of Consumers
Substitutes
2 goods are subs if a rise in the price of one of the goods increases the demand of the other
Compliments
2 goods are compliments if rise in price of 1 good leads to decreases of demand of the other good
Normal Goods
When a rise in income increases the demand for a good
Inferior Good
When a rise in income lowers demand for good
Individual demand curve
Illustrates the relationship between quantity demanded and price for an individual consumer
Market Demand Curve
Shows how the combined quantity demanded by an consumers depends an market price of a good
Which of the following would decrease demand for a normal good? A decrease in..
the price of a compliment
A decrease in the price of butter would most likely decrease demand for…
Margarine
If an increase in income leads to decrease in demand, the good is
Inferior
Which of the following will occur if consumers expect the price of a food to fall in the coming months
Demanda will decrease today
Which of the following will increase in demand for disposable diapers
A new baby boom
Quantity supplied
The actual amount of a good or service people are willing to sell at some specific price
Supply schedule
Shows how much of a good/service producers would supply at different prices
Supply curve
Shows the relationship between the quantity supplied and the price
Law of Supply
The price and quantity supplied of a goos are positively related
Change in supply
A shift of the supply curve, which changes the quantity supplied at any given price
Movement along the supply curve
A change in the quantity supplied of a good arising from a change in the good’s price
5 factors for changes in supply curve
- changes in input prices
- Changes in the prices of related goods
- Changes in technology
- Changes in expectation
- changes in numbers and producers
Individual Supply Curve
The relationship between the quantity supplied and the Process for an individual producer
Market Supply Curve
Shows how the combined total quantity supplied by all individual producers in the market depends on the market price of that good
Which will decrease the supply of rice?
Wage of workers producing rice increases
An increase in the demand fo steak, which increases the price of steak in lead to an increases in which of the following
The supply of leather- a complement in production
A technological advance in textbook production will lead to which of the following?
Increase in textbook supply
Equilibrium
Economic situation in which no individual would be better off doing anything different
Equilibrium Price
The price that matches the quantity supplied and the quantity demanded
Equilibrium Quantity
The Quantity bought and sold at that price
Market clearing price (equilibrium price)
The price that “clears the market” by ensuring that every buyer willing to pay that price finds a seller willing to sell at that price
Market price
Well-established ongoing market all selles recieve and all buyers pay about the same price
Surplus
Excess supply- good exceed quantity demanded
Shortage
Quantity demanded exceed the quantity supplied
Simultaneous shifts of supply and demand curves
- when demand increases and supply decreases the ep. rises but the change in equilibrium quantity is ambiguous
- when demand decreases and supply increases, equilibrium price falls but the change in the equilibrium quantity is ambiguous
- both demanded and supply increase the equilibrium quantity buy price is ambiguous
- both demanded and supply decrease the equilibrium quantity buy price is ambiguous
What will happen in the market for tomatoes if there is a salmonella outbreak?
Supply and demand will both decrease
What would lead to an increase in the equilibrium price of product x
Increase in price of machinery used to make product x
The equilibrium price will rise but the equilibrium quantity may increase, decrease, or stay the same if…
Demand increases and supply decreases
An increase in # of buyers and a technological audience will cause…
Demand to increase and supply to increase
What is true if demand and supply increase at the same time?
The equilibrium quantity will increase.
Productive efficiency
Product being produced in the least costly way
- any point on ppc
Allocative efficiency
The products being produced are the ones more desired by society
- optimal point on the ppc
Per unit opportunity cost =
Opportunity cost/units granted
Law of Increasing Opportunity cost
As you produce more of any good, the opportunity cost will increase
Incentives
Rewards or punishments for choices are key in a free market
4 factors of production
- land
- labor
- capital
- entrepreneurship
Trade-offs
All the alternatives that we give up whenever we choose one course of action over others y
Marginal
1 more
Aggregate means…
Total
Aggregate output
Total production of goods and services for a given time period
Ceteris paribus
All other things equal
Demand
The amount of a good o service that someone is willing and able to buy
Quantity demanded
The amount of good or service that someone is willing or able to buy at a given prove and a specific time
Law of demand
An increase in price will cause a decrease in the quantity demanded
Income effect
A change in price will cause a change in the purchasing power.
Substitution effect
If a product becomes more expensive people will choose a cheaper substitute
utility
Describes the usefulness of a product
Diminishing marginal utility
As more products are consumed the satisfaction from each new reduction declines
Supply
The different quantities of a good that sellers are willing and bel to sell at different prices
Law of Supply
There is a direct relationship between price and quantity supplied
