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ECO2013 > Unit 1: Chapters 1, 2, 3, 7 > Flashcards

Unit 1: Chapters 1, 2, 3, 7 Flashcards

1
Q

Economics is a social science that: A, B, C

A

A. examines how individuals, institutions, and society make optimal (best) choices under conditions of scaring.

B. Examines the efficient use of limited resources to achieve the maximum satisfaction of our wants

C. Human action is conscious or purposeful behavior meaning that people make decisions facing constraints with some desired outcome in mind

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2
Q

Output is limited because

A

Economic resources are limited

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3
Q

Opportunity cost

A

The value of the forgone benefit of the next best alternative to the activity chosen

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4
Q

Marginal benefit refers to the

A

Additional benefit of a specific activity

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5
Q

Marginal cost refers to

A

The additional cost, opportunity cost, of a specific activity

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6
Q

Abstractions

A

Principles, models, laws, theories, (maps) are simplifications if reality

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7
Q

Ceteris paribus

A

Variables other than those being considered are assumed not to change

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8
Q

MacroEconomics

A

Examines the performance or behavioe of the entire economy or is major aggregates

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9
Q

Microeconomics

A

Examines the behavior of individual buyers, workers, and business firms in specific product and resource markets.

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10
Q

Positive statement or positive economics

A

A. Objective. Fact. What is.
B. Functional cause and effect relationships.
C. Is not necessarily true, but can be proven to be either true or false

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11
Q

Normative statements or normative economics

A

A. Subjective. Opionion. What ought to be.
B. Value judgements
C. Cannot be proven to be true or false by reference to the facts.

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12
Q

Economizing problem or problem of scarcity

A

A. Economic wants exceed the productive capacity of an economy’s limited resources
B. Scarcity is a problem faced by all economic systems
C. Scarcity can never be eliminated
D. Four categories of economic resources, factors of production, or inputs (limited)

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13
Q

Four general categories of economic resources, factors of production, or inputs

A

Land (N), Capital (K), Labor (L), Entrepeneurial ability (E)

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14
Q

Land (N)

A

Refers to “gifts of nature” (natural resources) used in the production process

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15
Q

Capital (K)

A

Refers to tools, equipment, and buildings

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16
Q

Capital (K)

Investment

A

The production and accumulation of more capital; used to produce goods & services

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17
Q

Capital(K)

Financial capital

A

Money, stocks, and bonds- are not “capital” because they produce nothing. They make trade easier; barter

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18
Q

Labor (L)

A

Refers to the physical actions and mental activities that people contribute to the production of goods and services

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19
Q

Entrepreneurial ability (E)

A

Refers to the entrepreneur or innovator

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20
Q

Production possibilities frontier shows

A

The maximum combinations of output that can be peoduced when the economy uses its limited resources efficiently

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21
Q

To achieve efficiency or doing the best with what we have requires

A

Full employment of available resources

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22
Q

Trade offs, opportunity costs, no free lunch

A

A fully employed economy must sacrifice one good to get more of another good

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23
Q

The production possibilities curve is bowed out from (concave to) the origin because of the

A

Law of increasing opportunity cost

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24
Q

The economic rationale for the law of increasing cost is:

A

The opportunity cost of producing one more of a unit good (the marginal opportunity cost) increases as more of a good is produced.
Resources are not completely adaptable to alternative uses

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25
Q

Resources are allocated efficiently or allocative efficiency is

A

Achieved when MC=MB

Resources are devoted to the best mix of goods and services to maximize satisfaction

26
Q

Unemployment:
A. If the economy’s level of output is on the PPF, then ….
B. If the economy’s level of output is inside the PPF, then

A

A. resources are fully employed

B. resources are unemployed or underutilized.

27
Q

Economic growth

A

Refers to the ability of an economy to “bake a larger economic pie” or produce larger potential output

28
Q

Economic growth is illustrated by the

A

Economy’s PPF shifting outward

29
Q

Sources of economic growth

A

A. Increase in the quantity and quality of inputs (N, L, K, E)
B. Advances in technology and thus increase in labor productivity

30
Q

Fallacy of composition

A

Assumes what is true for the individual must necessarily be true for the group.

31
Q

False cause fallacy

A

Assumed that because one event (B) follows another (A) it must be result of the first (A). Do not confuse correlation with causation

32
Q

Direct (positive) relationship

A

Occurs when the two variables move in the same direction

33
Q

Inverse (negative) relationship

A

Occurs when the two variables move in the opposite direction

34
Q

Economic efficiency

A

Means that an economy is producing the maximum output, I.e it’s potential output, from its available resources

35
Q

Resources are being —- —— to a product when the marginal benefit (MB) equals marginal cost (MC)

A

Efficiently allocated

36
Q

Economic system

A

A set of insitutuonal arrangements and a coordinating mechanism used to respond to the condition of scarcity

37
Q

Capitalism

A

An economic system that gives private individuals the right to own the resources (land, labor, capital, E) used in production

38
Q

Characteristics of capitalism

A 
A. Private property rights 
B. Economic freedom 
C. Self interest is the motivating force 
D. Competition or competitive markets 
E. Markets and prices 
F. Limited government
39
Q

Invisible hand metaphor

A

Resource suppliers and firms, seeking to further their own self interest within a competitive market system, will automatically promote the public interest

40
Q

Market

A

Mechanism or process that brings buyers and sellers together to establish the price and the quantity

41
Q

Demand

A

Relationship between the product price and the quantity buyers are willing/able to buy at each price which might exist during a given time period

42
Q

Supply

A

Relationship between the product price and the quantity sellers are willing and able to sell at each price which might exist during a given period of time

43
Q

Law of demand

A

Price and the quantity demanded are INVERSELY related assuming all other unflueces in buyers’ planned purchases remain the same

44
Q

Law of supply

A

Price and the quantity supplied are directly related, ceteris paribus

45
Q

Interpreting demand curve:

For a qiven quantity, the demand curve shows the —– price buyers are willing and able to pay for that quantity
For a given price, the the demand curve shows the —— buyers are willing and able to pay at that price.

A

Maximum price; quantity

46
Q

Interpreting the supply curve:

For a given quantity, the supply curve shows the ——- price that sellers are willing to accept for the quantity.

For a given price, the supply curve shows the —– sellers are willing and able to sell at that price

A

Minimum; quantity

47
Q

Why is the demand curve downward sloping?

A

A higher price will reduce the quantity demanded because of the

  • subsititution effect
  • income effect
48
Q

Subsitution effect

A

Higher price for a good encourages consumers to search for cheaper substitutes and this buy less

49
Q

Income effect

A

Higher price for a good decreases the purchasing power of consumer incomes so they can’t buy as much of the good

50
Q

Why is the supply curve upward sloping?

A

A higher price will increase the quantity supplied because of:
Deminishing returns to labor causing increasing marginal cost.

51
Q

Determinants of demand

A
  1. Income of buyers
  2. Prices of other goods purchased by the buyer
  3. Preferences of buyers
  4. Expectations of buyers
  5. Number of buyers
52
Q

Normal good

A

Income and demand are directly related, ceteris paribus

53
Q

Inferior good

A

Income and demand are inversely related, ceteris paribus

54
Q

Substitute goods

A

Goods used in place of eachother

The price of good W and demand for good X are directly related, ceteris paribus

55
Q

Complementary goods

A

Goods used together

The price of good Y and the demand for good Z are inversely related, ceteris paribus

56
Q

Independent goods

A

Goods that are not related

57
Q

Determinants of supply

A
  1. Costs of production
  2. Prices of other goods produced by the seller
  3. New technologies and productivity
  4. Expectations of sellers
  5. Number of sellers
58
Q

Substitutes in production

A

Goods produced in place of eachother

The price of good R and the supply of good S are inversely related, ceteris paribus

59
Q

Complements in production

A

Goods produced together

The price of good T and the supply of good U are directly related ceteris paribus

60
Q

Equilibrium

A
  1. Demand intersects supply
  2. Quantity demanded equals quantity supplied
  3. The market clears. No surplus no shortage.

ECO2013 (3 decks)

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