Econ chp. 1-5 – Flashcards
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The economics of the former soviet union, eastern Europe, failed due to
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coordination (entrepreneurship), incentive problems
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An aggregate is a collection of:
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specific economic units treated as if they were one unit
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The concept that "there is no free lunch" reflects the notion that:
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scarce resources are used to produce so-called "fre goods that have alternative uses that are given up in order to product said "free" goods
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Command system
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government owns resources, a central planning board makes all economic decisions concerning resources
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the economic question of '__________' is about decisions related to the mix (quantity and type) of goods and services to make available in a given economy
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what to produce
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what to produce
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quantity and type
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how to produce
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inputs used to produce goods and services (land, labor, capital)
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an incremental or gradual change is also known as a ____ change
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marginal (addional)
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because consumers behave in a rationally self-interested manner, the consumer will purchase a good/service when
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the marginal benefit is greater or equal to the marginal cost
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Marginal analysis
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comparing the additional or incremental costs versus additional or incremental benefits of a decision
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An ______ outcome is one where the additional value or benefits of an action slightly exceed or exactly equal the additional costs of that same action
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efficient
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Positive Economics
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statements based on facts and measurable or scientific statements; what is
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Freedom of enterprise ensures that _____ and ______ are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets
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entrepreneurs; businesses
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pure capitalism is known as
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laissez-fair capitalism
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in a command economy, how is the division of output between capital and consumer goods determined
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centrally decided
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_____ property helps to facilitate exchange in a free market system
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private
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Laissez-faire
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keeping the government from interfering in the economy
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"Other-things-equal" assumption
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all variables expect those under immediate consideration are held constant for a particular analysis
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A statement about economic behavior or the economy thate enables prediction of the probable effects of certain actions is known as an
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economic principle; economic theory
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The economic decisions of different individuals are considered to be rational when these individuals:
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compare benefits and costs
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The economic perspective focuses on______, therefore the decision maker must compare incremental benefits and costs
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marginal analysis (comparing the marginal benefits and marginal costs)
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Economic growth, investment, innovation, exchange, and maintenance of property are all possible because of
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private property rights
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Freedom of choice enables owners to...
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employ or dispose of their property and money as they see fit (hire or fire)
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________ ability as well as _______ ability is an economic resource
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entrepreneurial; human
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factories, storage, transportation and distribution facilities, as well as tools and machinery are all examples of physical ________ goods
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capital
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spending that pays for the production and accumulation of capital goods
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investment
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factors of production
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land; labor; capital; entrepreneurship; knowledge
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a production possibilites curve (frontier) shows the attainable combination of:
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two goods that can be produced given a specific set of resources
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the factor of production (resource) that consists of the physical actions and mental activities that people contribute to the production of goods and services
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labor
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the law of increasing opportunity costs
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as production of a particular good rises, the opportunity cost of producing and additional unit rises
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trade off
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situation where on thing has to be given up in order to have some other item
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As you give up consumption or production of one good over another (the trade-off), and opportunity cost is
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incurred
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combinations of goods that fall beyond the production possibilites curve (frontier)
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require economic growth, resources that are not currently available, currently are unattainable
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constant opportunity cost is best represented by:
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the straight-line production possibilities
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consumer goods
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satisfy wants directly
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capital goods
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capital goods that satisfy human wants indirectly through the production of consumer goods
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term for when an individual or firm using available resources to produce one or only a few goods and services
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specialization
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human capital
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knowledge gained from formal and informal education
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points lying ______ the production possibilities curve (frontier) would represent a greater, but unachievable, level out output than that at any point on the curve
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outside
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points along production possibilities curve
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produced efficiently so long as an economy uses all of its available resources
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Points below the production possibilities curve
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show combinations or goods produced inefficiently
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Economist do not include money as a factor of production because:
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money is a medium of exchange rather than an input to the production of goods an services
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the law of increasing marginal opportunity costs is driven by:
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resources that are not equally productive nor interchangeable in the production of different goods and services
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One of the determinants of depand
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consumer expectations
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From economic perspective, what is true of a market?
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the pursuit of buyers and sellers in making themselves better off; it is a virtual and/or physical institution or space; buyers and sellers interact in their desire to buy and sell a good or service
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what kind of relationship does price and quantity supplied have?
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positive
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Producer expectations of future prices are a determinant of
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supply
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Inferior goods
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products that have decreased demands when consumer incomes rise and increased demand when consumer incomes fall
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demand
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the buyer side of any market
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marginal cost
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the added cost of producing one more unit of output
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*components of the circular flow model
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households; businesses; product market
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*improvements in technology are a determinant of
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supply
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determinants of supply
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taxes; subsidies
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determinant of demand
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income
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buyers and sellers are brought together in a
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market
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Market supply
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is a schedule or curve showing the various amounts of products that producers are willing and able to make available for sale at each possible price during a specific period
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number of buyers is a determinant of market
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demand
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the ________ incurred by firms when producing a good or service arise from the prices of the factors inputs that are used to produce said good or service
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costs of production
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Supply curve illustrates the relationship between
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Price and quantity supplied
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demand curve
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inverse relationship between price and quantity demand for a product
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Law of demand
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describes an inverse relationship between the price of a good or service and the quantity demanded of a good or service
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subsidy
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when the government provides financial assistance for the production of a good which lowers producers costs and increases supply
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if costs of production rise, the producer has an incentive to produce______ output at every possible cost
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less
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in a circular flow model, the market economy creates
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continuous, repetitive flows of goods and services, resources and money
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Inverse relationship
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when two variables are being examined, and one variable moves away and the other moves in the opposite direction
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what goods affect the demand for another product due to change in their price?
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substitute goods; complementary goods
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components of the circular flow model
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households; businesses; product market; resource market
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competitive market
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consists of a large number of independently acting buyers and sellers
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The interaction of buyers and sellers determines equilibrium price and equalibrium
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quantity
