Unit One Flashcards
Purposeful behavior
Individuals look to increase their utility (pleasure)
Economics realize impulse
Opportunity Cost
To obtain one good thing society forgoes the opportunity of getting the next best thing
Micro economics
Decisions making of individuals
Macro
Performance of the whole economy
Aggregate
Collection of specific economic units as if they are one unit
Positive economics
What is
Facts and cause/effect
Description theory development and testing
Normative economics
What should be
Value judgements and desirability of certain economic aspects
Individual Economic problem
Limited realities, unlimited wants
Budget line
Schedule or curve showing combinations of two products and how they go up and down
To obtain more of one you must give up the other
Society’s economizing problem
Where do we donate our resources?
Four factors of production
Land, labor, capital, (entrepreneurial ability)
PPC assumes
Full employment of resources, fixed resources and technology, two goods~~consumer goods (direct) and capital goods (efficiency)
Why is the PPC concave?
The law of increasing opportunity costs~~economic resources are not adaptable to alternate use
How can the PPC move?
Increase of resources, improvement of quality, trade and technology advances
Capital goods
Goods to produce other goods IE a factory. Lead to future economic growth
Does employment lead to shifts in the PPC?
NO. 4% unemployment is good. The employment moves the point not the curve
Marginal benefit in relation to total benefit
The slope of TB
Marginal cost
Slope of total cost
Direct relationship
Two variables move in the same direction
Inverse relationship
Two variables move in opposite directions
Economics
Social science examining how individuals and society make optimal choices under conditions of scarcity
Markets
Prices and profits lead to incentives
1) efficiency
2) incentives
3) freedom
Circular flow
Households to firms~~household gives money to firms in exchange for goods and services
Firms give households rent wages interest and profit in exchange for land labor capital and entrepreunial ability
Two aspects of an economic system
1) who runs the factor of production
2) method used to motivate coordinate and direct economic activity
Two extremes of economic systems
Command system and laissez faire capitalism
Command system
Government runs and owns almost everything with a central plan leading to socialism/communism
In reality soviets allowed some private ownerships
Laissez faire capitalism
Pure capitalism when gvnmt has very little say and no society has ever done this
Market System
Capitalism with a mixed economy and it relies on private property and freedoms
Dominant force is the market
The result is competition and incentives
Private property
Encourages people to cooperate to ensure “mutually agreeable” transactions
Facilitates exchange
Includes intellectual property rights
Freedoms
Freedom of enterprise ensures people can obtain resources
Freedom of choice
Market
Institution bringing buyers and sellers together
Specialization
Makes use of differences in ability
Fosters learning by doing
Saves time
Geographic specialization
Regional and international specialization
Five fundamental questions
1) what goods and services are produced?
2) how are they produced?
3) who gets them?
4) how will the system accommodate change?
5) how will it promote progress?
Consumer sovereignty
Crucial to determine the types and quantities of goods produced
“Dollar votes”
Competition
Eliminates high cost producers
Absolute advantage
Country who specializes in one thing
Ends up being irrelevant
Comparative advantage
Lower opportunity cost than other producer
Terms of trade
Exchange ratio
Depends on world’s supply and demand
Output problem
Two actors, what can they produce?
Input problem
How much time will it take
Fallacy of composition
The false notion that what is true for an individual is true for the whole group
Product market
A system in which products or bought by households and sold by firms
Two insurmountable problems of a command economy
Coordination and incentives
For the 20th century what economic ills did people blame on the free marker capitalism?
Inflation recession depression and unemployment
What was impressive about lenins Soviet Union
Industrialized a backwards society in a single generation
Goals of central planning of the soviet system
Criminalment controlled the economy
Became a military industrial super power
What did Oleg gordievsky reveal about the soviet economy
Devoted more than 50% of economy to military
AWPA
Alaskanwilderness preservation act
OSHA
Occupational safety and health administration
Protected workers
Production surplus
Amount the seller is paid less the cost of production
How do curved and straight PPCs differ
They do not
What problems do economic systems face
How to allocate scarce resources among unlimited wants
How to decide what to produce how to produce and for whom to produce
