Economics Unit 1 Questions And Answers – Flashcards
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the study of choice under conditions of scarcity - the study of how individuals, families, businesses, and governments use limited resources to fill unlimited wants
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economics
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exists if we desire more of something than we can have - an economic problem that results from unlimited wants and limited resources
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scarcity
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each of us must deal with this form of scarcity
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time and money
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what is the difference between shortage and scarcity
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shortages are temporary Scarcity relates to entire natural resource and when it runs out
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whenever the scarcity of money or time forces you to make a choice - when you give up one thing to get something else
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tradeoff
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what are economists interested in
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how people respond to trade offs
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the value of the next-best alternative given up when that choice is made - captures the full trade off involved in a choice - whatever you must give up for a choice
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opportunity cost
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any collection of people who share a common bond, such as those living in the same city or country
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society
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tradeoffs from society arise from...
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scarcity
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minimal requirements of things such as food, water, and shelter that are necessary for survival
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needs
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the things that are desired but not essential to life
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wants
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a system for coordinating the production and distribution of goods and services
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economy
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physical items produced in an economy - tangible things that can be seen, felt, or touched - produced through scarce resources and satisfy human wants
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goods
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activities produced in an economy - intangible things that use scarce resources to satisfy human wants
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services
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because of scarcity and trade offs, we are going to face..
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opportunity cost
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the opinion you would have taken, had you not taken the choice you did
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opportunity cost
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land, labor, capital, and entrepreneurship - the resources necessary to produce goods and services
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factor of production
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resources are the __ , production is the ___
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input, output
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natural resources
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land
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human resources
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labor
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manufactured goods used to make other goods
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physical capital
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knowledge, education skills
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human capital
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the people who start new businesses, create new products or processes, or people who improve management techniques
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entreperneurship
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the production or output is made of...
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goods and services
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where does the allocation of resources happen
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inside the country and between the countries
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a willing exchange of goods and services for mutual gain - this allocation of goods/services makes both people better off
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trade
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a simplified representation of reality that explains how you can divide your scarce resources among the different types of production - used because economics is a social science and is the easiest way to see human behavior because human interaction is very complex
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model
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why is economics a part of a social science
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it deals with human interactions
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a curve that shows the maximum quantity of one good that can be produced for each possible quantity of another good produced -
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PPF (production possibility frontier)
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on a PPF, what are the points on the curve representative of
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possibilities
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on a PPF, what is the curve representative of
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frontier
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what do the unlabeled points between the labeled points represent in a PPF
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quantity of x and y that can be made using all available resources
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represents a border between what the country can produce and what it cannot produce using the available resources
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frontier
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what is a point outside of PPF represent
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unattainable - not enough resources available to produce the combo of goods that the point represents
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the tendency for the opportunity cost of a good to rise as more of the good is produced - some resources are better suited for one type of production than for another
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the law of increasing opportunity cost
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when is the economy of a country efficient
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if the country takes every opportunity to make some people better off without making other people worse off - the country is getting the most out of its available resources
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any point that lies below the PPF means that...
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production is inefficient
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resources that could be used to make some good or service but are not being used to produce anything - causes a country to operate below PPF - opportunity cost of production does not apply here
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Idle resources
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how can one produce more goods and services under idle resources
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by putting resources to use
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the country might be using all of its resources but not in a productive way
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inefficient resources
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an increase in the ability to produce goods and services over time - common goal because it enables a country to produce more goods and services and does a better job at satisfying the needs and wants of its citizens
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economic growth
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what are two sources of economic growth
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increase in resources and the discovery of new ways to produce goods and services using fewer resources
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includes implicit costs, so making decisions by merely considering the flow of funds into and out of your wallet will lead to decisions that fail to maximize your satisfaction
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extra benefits and extra costs (marginal)
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what happens when you base decisions on explicit costs only
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you can measure the number of dollars coming into wallet versus number flowing out
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out of pocket cost
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explicit cost
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all other factors of cost
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implicit costs
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if wage goes up, the cost of everything else goes up because the wage is a price - would cause a shortage of labor
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inflation
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why does good intention not work
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incentive will backfire
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the three basic economic questions
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what should be produced, how should it be produced, for whom should it be produced
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economics is divided into two major areas
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microeconomics and macroeconomics
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the study of how people make decisions and how those decisions affect others in the country - ex. how many hours should you work for pay each week? Is college a good investment?
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microeconomics
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the study of the economy as a whole - includes the ups and downs of the economy and the interactions between its various parts - ex. why do the prices of goods and services tend to rise over time? what effect does government borrowing have on economy?
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macroeconomics
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the study of what the world is like and why it works the way it does - facts about cause and effect relationships - allows predictions to be made which helps individuals, businesses, and governments plan for the future - ex. how many teenagers live in poverty? do people buy more or less coke when their incomes increase?
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positive economics
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the study of the way things should be rather than the way things are - brings opinions and ideals into the process of answering questions - ex. should our country do more to help the poor? should college athletes be paid?
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normative economics
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what is the difference between positive and normative economics
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positive economics focuses on how things are actually today where as normative economics focuses on the way things should be
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considered one of the most influential economists of the twentieth century - theorized that money supply and prices are directly linked - suggested that the federal reserve needed to regulate the money supply in order to prevent price inflation - strong advocate for the free-market economy - promoted negative income tax - wants economic freedom at all costs
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milton friedman
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saw economic behavior as guided mainly by the force of self-interest - viewed the economy as a system in which regular patterns emerged from people buying and selling in markets - stressed that people should be free to make decisions without meddling from the government or other outside forces
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adam smith
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even when people act from selfish moves, the market encourages them to make the kind of selfish decisions that will benefit others
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invisible hand
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five goals of the economic system
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economic growth, efficiency, equity, economic security, economic freedom
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measured by the GDP, if you take GPD and divide it by country, you will have the GDP per capita (standard of living), capitalist is good at this goal
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economic growth
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depends on how the three basic economic questions are answered - considered the well being of everyone
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efficienvy
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some people believe in equality of outcome - some believe in equality of opportunity - U.S. looks more frequently at equality of outcome instead of opportunity
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equity
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everyone in society should have the same opportunity in life
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equality of opportunity
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people need a safety net
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economic security
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people can make economic decisions for themselves - people who prefer to live in a country where they are free to choose
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economic freeedom
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no government - no ownership of property - no individual, belongs to group, everything in common - every one has a share in the distribution of income - social approval or you're kicked out
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traditional economy
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government very important - yes incentive, if you don't do what government says, you do to prison - government controls resources - goal of equal distribution of income where everyone has a share
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command economy
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government has no role (wants trading) - profit is an incentive (it's good to be selfish, adam smith) - inequality of distribution of income
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market economy
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protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. According to neoclassical theory, mixed economies are less efficient - capitalism + socialism
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mixed ecnomy
