Economics Chapter 1, 2, 3 – Flashcards
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The study of how a society produces, exchanges, and consumes goods and services in the face of economic scarcity.
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Economics
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Type of scarcity where you are running out of resources needed for production
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Absolute scarcity
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Type of scarcity involving the fact that ociety has infinite wants and desires, not needs. Society must make choices about what to produce.
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Economic scarcity
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All human effort that goes in to production. Earning = wages
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Labor
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All natural resources used for production. Earning = rent
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Land
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Machinery, plant, and equipmenet used in production. An example is a hammer or assemly line. Earnings = interest
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Capital
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Innovator or risk taker; person puts up money to start a new business. Earnings = profit
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Entrepreneurship
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This type of profit needs to be earned just to stay in business; not a specific $ amount
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Normal profits
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Profits earned that are over and above normal profits
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Excess profit
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What are the three economic agents?
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Households, business firms, and government
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A context in which the voluntary exchange between a buyer and a seller of a good or service takes place.
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Market
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Use money to pay labor (income)
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Factor Payments
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What are the four Economic Issues/Goals?
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Efficiency, Equity, Stability, Economic Growth
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Making the best possible use of resources when trying to achieve something
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Efficiency
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The efficient use of resources when producing a good or service
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Technical Efficiency
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The efficient allocation of society's scarce resources
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Allocative Efficiency
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What are four questions an economy must answer?
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What to produce, how to produce, how much, who is your market?
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How do we determine which resources to allocate?
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by prices and competitive markets
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After buying something, producers get "signal" on what consumers live and what makes profit
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Dollar votes
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Refers to the way society's output is distributed. Is it fair? (this is an opinion)
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Equity
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Payment from govt to a household in which the household does no corresponding work
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Transfer payment
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What are the two variables of stability?
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Price and employment
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Refers to the substantial and sustained increase in the nation's income or output. Roughly 5%
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Economic growth
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Study of the determination of economic aggregates such as total employment, total output, and the price level. Deals with stability and growth
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Macroeconomics
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Study of the efficient allocation of reltaively scarce resources and the distribution of income. Deals with equity and efficiency
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Microeconomics
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Ignoring many details to focus on the most important elements of a problem
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Abstraction
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Value of the benefit of the best alternative when a choice is made
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Opportunity cost
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What is an example of an opportunity cost?
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If you have to choose between 80k or 90k and you choose 80k, the opportunity cost is 90,000
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Statement that states what is - deals with facts and explanation
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Positive statement
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Statement that involves a value judgement. Word "should" is used
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Normative statement
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The value of the dependent variable when the independent variable equals zero (when line crosses vertical intercept).
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Vertical intercept
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Shows the max alternative combinations of two goods that an economy can produce at a given time, with a given stock of resources, a given level of technology, and fully employed resources.
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Production Possibility Curve
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What kind of slope do production possibility curves have?
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negative
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what four functions do market prices perform?
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1. Determines resource allocations 2. Give consumers and suppliers a relative idea of value 3. Provide information about the future - price trends 4. Provide incentives to firms to provide goods and services as well as incentives to households to provide resources through labor
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Tells us the quantity that consumers are willing and able to buy at all alternative market prices under all market conditions
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complete market demand function
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What is the complete market demand function equation ?
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(Dx) = f(Px, Yc, Nc, Tc, Ps, Pc, Yd, Ec)
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All other varibales held constant
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ceteris Paribus
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Tells us the quantity that consumers are willing and able to buy at all alternative market prices, ceteris paribus
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Single market demand function
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What is the one thing that is not held constant for ceteris paribus?
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Price
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The last price a consumer will purchase the good
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Buyer's reservation price
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Law that states in general, there is an inverse or negative relationship between the quanitity of (x) consumers are willing and able to buy and the price, c.p. -Demand curve slopes down to the right -Market does not have to provide product
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Law of Demand
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What are the three reasons why law of demand holds true?
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Law of diminishing marginal utility, income effect, substitution effect
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If we take an individual consumer and a bundle of quantities of a good, over the relevant range, marginal utility received will also be positive but declining as units of consumption increase.
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Law of Diminishing Marginal Utility
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Satisfaction consumers receive from consuming a good
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Utility
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Total satisfaction received from consuming a certain quantity of a good (example: eating a whole bag of chips in one sitting)
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Total utility
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the extra utility that is brought about the addition of one more unit of the good
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Marginal utility
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A price increase of good (x) will decrease the relative income of consumers
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Income effect
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As the price of good (x) rises, consumers will purchase more of substitute good (w)
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Substitution effect
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a good such that when a consumer's income rises, their demand for this good increases
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Normal good
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A good such that when a consumer's income rises, their demand for this good decreases
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Inferior good
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Tells us the quantitiy of a good that produces would be willing and able to supply at all alternative market prices and all alternative market circumstances
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Complete market supply function
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What are the components of the complete market supply function equation?
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Px, Ns, Pr, Ti, Es
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Tells us the quantity of a good that producers would be willing and able to supple at all alternative market prices, ceteris paribus
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Single market supply function
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There is a direct relationship between the quantity of a good supplied and the price in the short run
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Law of supply
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A period of time so short that the firm cannot change lal inputs by the same proportion. Fixed capital, can change labor
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Short run
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A period of time in which a firm could vary all of its inputs by the same proportion
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Long run
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As we add more of a variable resource to a fixed set of inputs with a fixed technology, the resulting output will increase over the relevant range, but at a decreasing rate
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Law of Diminishing Returns
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Total amount of a product that produced during a given time period by labor
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Total Physical Product of Labor
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Extra physical product resulting from the addition of one more unit of labor. Change in total quantity/change in labor
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Marginal physical product of labor
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T or F: Our economy determines the allocation of resources through prices and competitive markets.
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True
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T or F: Macroeconomics deals with the economic goals stability and equity
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False
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What is an economic explanation for why most college aged movie stars do not attend college?
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The opportunity cost in terms of reduced income is too great
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T or F: Abstraction is necessary in economics because there are so many variables to keep track of.
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True
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T or F: This is an example of a positive statement: The Bison football team will win another national championship this year.
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False - positive statements deal with facts
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A PPC shows...
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The maximum amounts of 2 goods which can be produced assuming the full and efficient use of available resources
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Which concepts are not illustrated in the PPC?
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Price and consumption
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T or F: Ice cream and chocolate sauce would be examples of substitute goods.
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False
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A normative statement is one which is...
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Based on value judgments
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Which is not held constant when a demand curve is drawn?
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Price of the product itself
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When the price of good j increases, the demand for good k increases. this means that j and k are....
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Substitutes
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The price of one good increases, there will be a decrease in demand for other product.
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Complimentary good
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Most production possibility curves are concave to the origin
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True
