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