Chapters 1&2 – Macroeconomics Flashcards

inability to satisfy all of our wants; is universal.

a reward that encourages an action or a penalty that discourages one. -the key to reconciling self-interest and social interest

the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices

the study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments.

the study of the performance of the national economy and the global economy

the objects that people value and produce to satisfy wants

the resources used to produce goods and services: land, labor, capital, entrepreneurship

"gifts of nature" that we use to produce goods and services -- aka natural resources.

the work time and work effort that people devote to producing goods and services. includes the physical and mental efforts

the knowledge and skill that people obtain from education, on-the-job training, and work experience. This expands over time.

the tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services

money, stocks, and bonds. plays an important role in enabling businesses to borrow the funds that they sue to buy physical capital.

the human resource that organizes labor, land, and capital

what does land earn?

what does capital earn?

what does entrepreneurship earn?

what does labor earn?

the choices that you think are the best ones available for you... made in your _______________

an outcome that is best for society as a whole

a situation that cannot be improved upon. resource use is ____________ if it is NOT possible to make someone better off without making someone else worse off.

the expansion of international trade, borrowing and lending, and investment.

the technological change of the past 40 years

the years between 1993 and 2007 that brought remarkable economic stability

an economic system in which individuals own all the land and capital and are free to buy and sell land, capital, and goods and services in markets. Billions of self-interested choices and their coordination in markets determine what, how, and for whom goods and services are produced. - no supreme planner guiding the use of scarce resources - outcome is unintended and unforeseeable

an economic system in which the government owns all the land and capital, directs workers to jobs, and decides what, how, and for whom to produce

market capitalism with government regulation (what our economy is today)

an exchange--giving up one thing to get something else - a choice ALONG the PPF involves this

a choice that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice -only the wants of the person making a choice are relevant to determine its rationality

the gain or pleasure that something brings, or the most that a person is willing to give up to get something -determined by preferences

what a person likes and dislikes and the intensity of those feelings -- describe what people like and want

the highest values alternative that must be given up to get something -- most situations involve choosing HOW MUCH of an activity to do

when a choice is made by comparing a little more of something with its cost, the choice is mad at the _________

the benefit that arises from an increase in an activity

the opportunity cost of an increase in an activity

is about what IS. Says what is currently believed about the way the world operates. Might be right or wrong, but we can test it by checking it against the facts.

is about what OUGHT TO BE. depends on values and cannot be tested. May agree or disagree with it, but you can't test it. it does not assert a fact that can be checked

economists are interested in positive statements about ___________________

a description of some aspect of the economic world that includes only those features that are needed for the purpose at hand. -- is tested by comparing its predictions with the facts. -testing it is difficult because we observe the outcomes of the simultaneous change of many factors

(EX: cell phone network--features such as price of calls, number of users, and volume of calls, but would ignore cell-phone colors and ringtones)

situations in the ordinary course of economic life in which the one factor of interest is different and other things are equal or similar

the boundary between those combinations of goods and services that can be produced and those that cannot -separates the attainable from the unattainable

the quantities produced of only two goods change, while the quantities produced of all the other goods and services remains the same

we achieve _______________ if we produce goods and services at the lowest possible cost. this outcome occurs at ALL of the points on the PPF --> but the best point is where the goods/services in the quantities that provide the greatest possible benefit

all of the points inside the PPF because we are giving up more than necessary of one good to produce a given quality of the other good -resources are either unused, misallocated, or both

resources that are idle but could be working

resources that are assigned to tasks for which they are not the best match

the highest-valued alternative forgone. the PPF makes this idea precise and enables us to calculate _______________. there are only 2 goods along the PPF, so there is only ONE alternative forgone: some quantity of the other good

the decrease in the quantity produced of one good divided by the increase in the quantity produced of another good as we move along the PPF the OC of producing an additional item is equal to the INVERSE OC of producing an additional 2nd item

increases the production of food at each level of production of other goods and services-- an outward shift

when goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit

the opportunity cost of producing one more unit of a good. we calculate this from the slope of the PPF

the benefit received from consuming one or more unit of a good or service. this is subjective, and depends on peoples preferences -is measured by the most that people are willing to pay for an additional unit of a good (or the quantity of other goods/services you are willing to forgo)

contrast marginal cost and production possibilities

describe the limits or constraints on what is feasible

the device we use to illustrate preferences. it shows the relationship between the marginal benefit from a good and the quantity consumed of that good IS UNRELATED TO THE PPF AND CANNOT BE DERIVED FROM IT

the more we have of any good or service, the smaller is its marginal benefit and the less we are willing to pay for an additional unit of it. (because we like variety)

the expansion of production possibilities. it increases our standard of living, but it doesn't overcome scarcity and avoid opportunity cost. -comes from technological change and capital accumulation - to make this happen, we face a tradeoff--the faster we make production grow, the greater is the opportunity cost of ________________ -brings enormous benefits in the form of increased consumption in the future, but is not free and it doesn't abolish scarcity

the development of new goods and of better ways of producing goods and services

the growth of capital resources, including human capital

a person has _____________________ in an activity if that person can perform the activity at a lower opportunity cost than anyone else -involves comparing opportunity costs

a person who is more productive than others has __________. -excels and can outperform others in a large number of activities--possibly even in all activities -involves comparing productivities (production per hour)

works badly because economic planners don't know people's production possibilities and preferences, so production ends up INSIDE the PPF and the wrong things are produced.

needs 4 complementary social institutions: firms, markets, property rights, and money

an economic unit that hires factors of production and organizes them to produce and sell goods and services -coordinate a huge amount of economic activity -chooses the quantities of factors of production to hire

any arrangement that enables buyers and sellers to get information and to do business with each other. -coordinates decisions through price adjustments

the social arrangements that govern the ownership use, and disposal of anything that people value. - when _____ are enforced, people have the incentive to specialize and produce the goods and services in which they have a comparative advantage

includes land and buildings--the things we call property in ordinary speech--and durable goods such as plant and equipment

includes stocks and bonds and money in the bank

the intangible product of creative effort. includes books, music, computer programs, and inventions of all kinds - is protected by copyrights and patents

any commodity or token that is generally acceptable as a means of payment. -- this "invention" makes trading in markets much more effiecient

trading in markets for goods and services and factors of production creates a _______________ of expenditures and incomes

specialize and choose the quantities of labor, land, capital, and entrepreneurial services to sell or rent to firms

households choose the quantities of goods and services to buy, and firms choose the quantities to produce

households receive incomes and make expenditures on goods and services