Econ 1-3

The central problem of economics is the
scarcity of resources relative to human wants
the primary concern of economics is the study of
how best to allocate scarce resources among competing uses
the study of economics focuses on
how to best allocate scarce resources
factors of production
-the factors of production as well as technology determine the physical limits to production
-are the resource inputs used to produce goods and services
if society lacks enough resources to satisfy all the desired uses of the resources
the desire for goods exceeds out capacity to produce them
societies must address the question of WHAT to produce because
we cant produce all the goods and services we want
ability to see market opportunities and the will take risk
the most desirable attainable mix of output for society
consists of a point on the production possibilities curve
consistent with market economy
Laissez Faire
individual associated with laissez faire
adam smith
if the market mechanism causes the economy to arrive at the wrong mix of output there is
market failure
market failure means
the market mechanism does not produce the best mix of output
externality is
a cost or benefit of a market activity that impacts a third party
if government intervention fails to improve economic outcomes, the result is known as
government failure
macroeconomics focuses on
the economy as a whole
microeconomics focuses on
the behavior of individuals, firms, and government agencies
ceteris paribus
nothing else changes – other things remaining equal
capital refers to
goods that can be used to produce other goods
production possibilities
are limited for all countries because resources are scarce
the economy of the united states is best characterized as
a mixed economy
economic models focus on
basic relationships
a country’s GDP is
the sum of the physical amounts of goods and services in the economy
nominal GDP measures the
values of output produced in current prices
nominal GDP is affected by changes in
output and prices
real GDP measures
the inflation-adjusted value of final goods and services produced in the united states
real GDP is
the best measure of an increase in actual output
to compare the standard of living of one country to another, econmics use
per capita GDP
economic growth implies that
total value of the output produced has increased
economic growth
is and increase in output or real GDP
on average, the US real GDP has grown
3% per year
consumer goods
include expenditures for durable goods, nondurable goods, and services
the goods and services sold to foreign buyers
the goods and services purchased from foreign sources
exports vs imports
imports have a larger dollar value than exports for the united states
US net exports are
equal to the value of exports minus the value of imports
net exports measures the
dollar value of exports minus the dollar value of imports
sole propietorships
are owned by one individual
are the most common type of business firm
in the US, corporations
dominate market transactions
a form that produces the entire market supply of a particular good o service
externalities refers to
some costs and benefits of a market activity borne by a third party
income mobility
if a person moves from the lowest fifth of the households to the highest fifth over many years (income)
markets viewed from supply and demand
assume many buyers and sellers
law of demand states by all other things being equal
prices and quantities are inversely related
economists used demand to refer to
schedule of various combo of market prices
demand curve shows
quantity demanded at each price with a series of prices
inferior good
you buy for your income – inferior good isn’t bad but you buy certain products according to your income
factor market
any place where factors of production are sold (land, labor, entreuporship, capital)
product market
any places where finsihed goods and services are sold