Chapter 1/2 – Flashcards
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Unlimited wants exceed the limited resources available.
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Which of the following best describes scarcity?
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Every choice involves an opportunity cost.
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Scarcity is central to the study of economics because it implies that...
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Marginal benefit equals marginal cost.
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Economists use the word "marginal" to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when...
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What goods will be produced. How will they be produced. Who will receive the goods.
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The three economic questions that every society must answer are...
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Government
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Centrally planned economies allocate resources based on decision by the...
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Households and firms
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Market economies allocate resources based on decisions made by...
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A good or service is produced at the lowest possible cost.
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Productive efficiency means that...
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Every good or service is produced up to the point where marginal benefit is equal to marginal cost.
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Allocative efficiency means that...
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Fact, what actually is
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Positive analysis...
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Fiction, or opinion; what it could/ should/ ought to be.
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Normative Analysis...
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the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices. (i.e. how consumers react to changes in product prices, how firms decide the prices for products they sell.)
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Microeconomics
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the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. (i.e. explains why some economies experience recession while others experience periods of growth.)
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Macroeconomics
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Shows the maximum attainable combinations of two goods that may be produced with available resources.
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A production possibilities frontier...
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With points on the production possibilities frontier.
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We can show economic efficiency...
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With points inside the production possibilities frontier.
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We can show economic inefficiency...
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If technological advances occur.
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The production possibilities frontier will shift outward...
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Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.
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Factor Markets
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Markets for goods -- such as computers -- and services -- such as medical treatments.
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Product Markets
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They use all available information as they take actions intended to achieve their goals.
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Economists assume that people are rational in the sense that...
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Human wants are greater than what available resources can produce.
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Scarcity implies that every society and every individual face trade-offs because scarcity means that...
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Goods are distributed in a way that maximizes benefits to society.
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Efficiency
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Goods are distributed in a way that is fair.
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Equity
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The highest valued alternative that must be given up to engage in an activity.
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Opportunity Cost is...
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Increasing the production of a good requires larger decreases in the production of another good. (Would cause the production possibilities frontier to bow outward)
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Increasing marginal opportunity costs mean...
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The ability to produce more of a good or service than competitors using the same amount of resources.
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Absolute Advantage
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The ability to produce a good or service at a lower opportunity cost than other producers.
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Comparative Advantage
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Will have a comparative advantage if it has a lower opportunity cost of producing that good.
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A country without an absolute advantage in producing a good...
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Comparative advantage.
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What is the basis for trade?
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A country can specialize in producing that for which is has a comparative advantage and then trade for other needed goods and services.
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How can a country gain from specialization and trade?
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It makes it possible for society to become better off by increasing both its production and consumption.
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One of the great benefits of trade is...
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The circular-flow diagram shows the maximum attainable combinations of two products that may be produced with available resources and current technology.
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What is the circular-flow diagram and what does it illustrate?
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The rights individuals and firms have to the exclusive use of tangible, physical property and intellectual property.
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Private property rights are...
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Encourage a significant number of people to be willing to risk funds by investing them in business and encourage firms to spend money on research and development.
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Private property rights...
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To make their decisions based on the law. - free of influence from people with powerful political connections - free of intimidation by criminal gangs - free of influence from other parts of government
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Independence is necessary for courts:
