Economics chapter one and two – Flashcards
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How people allocate limited resources to satisfy our unlimited wants.
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Economics
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What will be produced and how much? How will items be produced? And for whom will items be produced?
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Three basic questions of economics
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Define the terms under which people agree to make exchanges
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Prices
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We assume that indivuals do not intentionally make decisions that would leave themselves worse off.
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Rationality assumption
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Simplified representation of the real world used as the basis for predictions or explanations
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Economics as a science
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Bound by science and the scientific method
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Bounded rationality
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Incentives, trade offs, opportunity costs, trade, marginal thinking.
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5 foundations of economics
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Factual what is
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Positive
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Should ought to be
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Normative
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We do not have enough of everything including time, to satisfy our every desire. It exists because of human wants, and limited resources.
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Scarcity
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Conversion of reasources into products used for consumption
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Production
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Land, labor, physical capital, human capital, and entrepreneurship
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5 factors of productions
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Relying on real world data in evaluating the usefullness of a model.
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Empirical
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An approach to the study of consumer bethavior that emphasis psychological limitations and complications that potentially interfere with rational decision making
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Behavioral economics
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Rationality assumption, responding to incentives, self interest.
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Command and control
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Don't have enough of everything to satisfy desire.
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Scarcity
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Location specific, insufficiency that is temporarily or localized.
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Shortage
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Next best/ highest alternative. Foregone opportunity
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Opportunity cost
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One to another
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Trade offs
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A curve representing all possible combinations of maximum outputs that could be produced assuming a fixed amount of productive resources of a given quality
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Production possibility curve
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Study if how people make choices to satisfy their wants
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ECONOMICS is best defined as
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How people allocate their limited resources to satisfy their unlimited wants
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Economics is the study of
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Choices
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The primary purpose of economics is to understand how people make
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The study of behavior of the economy as a whole
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Macroeconomics is bes defined as
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What to produce, how ro produce items, whose items are produced for, ,
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The issues that an economic system attempts to solve inculdes
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Because economics relies on real-world data to determine the usefulness of a model
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Why is economics called an empirical science?
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Rational self interest
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Economists assume that people are motivated by
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People do not make themselves intentionally worse off.
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The rationality assumption
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Cetera Paribas assumption
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The assumption that " other things are constant" is also known as the
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The inability of society to satisfy all human wants because of limited resources.
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Scarcity
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Factors of PRODUCTIONS.
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Human capital
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By going to school an individual will obtain which resource?
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Opportunity cost
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The value of the best alternative sacrificed to obtain something you want is referred to as
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The maximum combination of goods and services that can be produced with fixed resources and technology, given efficient use of the resources.
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The production possibility curve
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Unemployed resources
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A country operates inside it's production possibilities curve, this may be caused by
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The law is increasing additional cost
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The production possibility curve which bows out because
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Can perform the activity at a lower opportunity cost than another person can
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A person has a comparative advantage in an activity whenever she
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The opportunity cost of changing oil is higher for tiger Woods than for the garage mechanic
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Tiger Woods, a professional glofer, pays a garage mechanic to change the motor oil of his car teen though he can do the work himself. Which of the following best explains why tiger Woods does not change his own oil
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Income, taste +preference, prices of related goods (substitutes + complements), market size # of buyers, expectations.
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What are the determinate of demand
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Cost of input, technology + productivity, taxes + subsidies, price expectations, market size # of firms in industry.
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What are the determinate of supply
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Absolute advantage
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Comparative advantage
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As price goes up people demand and buy less vice versa.
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The law of Demand
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Showing how much of a good or service people will purchase at any price durning a specified time period, other things being constant.
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Demand schedule
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The price expressed into today's economy
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Money price
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The money price of one commodity divided by the number of units of one commodity that must be sacrificed to purchase one unit of another commodity.
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Relative price
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Inverse
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The law of Demand posits an _____ relationship between the quantity demanded of a good and it's price, other things being equal
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Demand
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The law of _______ applies when other things, such as income and the prices of all other goods and services, are held constant.
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The demand of all consumers in the marketplace for a particular good or service.
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Market demand
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Constant
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We measure the demand schedule in terms of a time dimension and in _______ - quality units.
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Market demand
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The _______ ________ curve is derived by summing the quantity
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Goods for which demand rises as income rises
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Normal goods
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Goods for which demand falls as income rises
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Inferior goods
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A schedule showing the relationship between price and quantity supplied for s specified period of time, other things being equal.
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Supply
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The observation that the higher the price of a good , the more of that good sellers will make available over a specified time period, other things being equal.
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Law of supply
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The price that clears the market, at which quantity demanded equals quantity supplied the price where the demand curve intersects with supply curve.
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Marketing clearing
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The situation when quantity supplied equals the quantity demanded at a particular price
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Equilibrium
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The situation in which quantity demanded is greater than quantity supplied at a price below the market clearing price
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Shortage
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A situation in which quantity supplied is greater than quantity demanded at a price above the market clearing price
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Surplus
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Waiting in lines with limited quantity coupons rationing random assignment
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Non price rationing methods
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Economic efficiency, less to know ways, max maximum operation with minimum spending, less opportunity cost, allow resources to make from lower values is the higher value uses
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Free system advantages
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Market failures too few or too many resources go specfic economic activities
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Disadvantages
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Cost or benefit for a third party
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Extranalities
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Correct externalities, promote competition, provide public goods, provide a legal system, ensuring economic stability
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Economic functions of government
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Goods are goods that can be consumed jointly by mainly individuals
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Public goods
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Government mandated minimum or maximum prices that may be charged for goods or in services
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Price control s
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a legal maximum price that may be charged for a particular good or service
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Price ceiling
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A legal minimum price below which a good or service may not be sold legal minimum wages are an example
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Price floor
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A physical supply restrictions on imports of a particular good such as sugar for export to are unable to sell in the United States more than the quantity Pacific in the import quota
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Import quota
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The difference between the total amount that the consumers would be willing to pay for an item and the total amount that they actually pay.
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Consumer surplus
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The difference between the total amount that producers actually receive for an item and the total amount that they would be willing to accept for supplying that item.
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Producer surplus
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The sum of consumer surplus and producer surplus
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Gains from trade
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A charge to a polluter that gives the right to discharge into the air or water a certain amount of pollution; also called a pollution tax.
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Effluent fee
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Laws that restrict the formation of monopolies and regulate so anticompetitive business practices.
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Antitrust legislation
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A firm that can determine the market price of a good. In extreme case, a monopoly is the only seller of a good or service.
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Monopoly
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Goods that can be concurred by only one indivuals at a time. Private goods are subject to the principle of rival consumptuon.
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Private goods
