Sleeman Midterm 1 : WWU Econ 206 – Flashcards
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study of how to find scarce resources amoung alternative wants
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What is the standard definition of economics?
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Yes, positive incentives are more effective than negative benefits
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Are incentives important in determining the decisions made by economic agents?
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it is the production of good
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What is meant by economic activity?
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Economics is what economists do
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How did I define economics?
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teach, do research, engage in administration
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What sorts of things do academic economists do?
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quality and quantity to access to goods and services
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What does scarcity mean to you and me?
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the quantity demanded is greater than quantity supplied
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What does scarcity mean to an economist?
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When the demand is higher than the supply
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When is a good or service scarce?
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no, they are financial
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Are stocks, bonds, and gold capital?
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cheaper labor means less capital, more capital means less labor
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How does an economy's endowment of labor and capital effect how it produces goods?
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What, how, and who will produce the produce
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What are the three questions that all economies must answer?
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we sacrifice some opportunity in order to gain scarcity.
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How is opportunity cost related to scarcity?
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opportunity cost of X is the value of the next most valuable alternative given up
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What is the standard definition of opportunity cost?
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net benefits = total benefits - total costs
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What is Sleeman's definition of opportunity cost?
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change in total cost brought about by unit change in what we are doing
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What is Marginal Cost and Marginal Benefit (MC=MB)?
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When the demand becomes a surplus
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At what point should you stop expanding an economic activity?
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expenditure that cannot be recovered and should not be taken into account because it isn't a cost
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What is a sunk cost?
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Explicit is what you paid, implicit is what you gave up
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What is the difference between explicit and implicit costs?
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individuals make prudent / logical desicions in their self interest. self interest leads to want
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How does the rational choice theory relate to scarcity?
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amount of things that can be bought until there is no more money to spend
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What is a budget constraint?
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doing something because it is the right thing to do
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What is altruism?
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real price removes inflation from the nominal prices
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What is the distinction between nominal and real prices?
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shows the relationship between price and quantity demanded
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How do economists define a demand curve?
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producers wont demand something they cant or wont sell
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Why is the demand curve is also a MB and WTP curve?
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It needs to be backed by an ability to pay (requires income, wealth, and access to credit)
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What does a demand curve mean to an economist?
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shows for what price a profit-maximizing firm will be willing to supply at that price
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How do economists define a supply curve?
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positive because of diminishing returns
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Why do economists assume that supply curves are positively sloped?
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people wont demand more than minimum of what they would pay or want to pay
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Why is the supply curve is also the MC and WTA curve?
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When there is excess supply, the price of x will be bid down
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How do supply and demand determine price?
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everyone who wishes to bye gets and everything is sold
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Why does MB = MC at the market equilibrium?
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situation in which is it not possible to make someone better without someone being worse off
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What is Pareto optimum?
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if only price changes, there is a change. if ANYTHING else changes there is a shift
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What is the distinction between a movement along a supply or demand curve and a shift in a supply or demand curve.
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-price of inputs -technology -weather -government -price -number of supplies
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What are the six determinants of supply ?
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-price of substitutes -price of complements -income -price -tastes -number of buyers
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What are the six determinants of demand?
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all markets are based off the individual
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How is a market supply curve or market demand curve derived from the individual curves?
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only one curve has shifted and that PX and QX have both decreased --> demand for X has fallen PX has decreased while QX has increased then supply of X --> increased.
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How can we deduce whether the demand or supply curve caused a particular change in price and quantity transacted?
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diagram is a visual calculating device
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What is the difference between a diagram and a picture?
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there are only certain obtainable options of combinations of x and y
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Why does Sleemania only produce two goods or services?
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curve that shows all maximum amount of one good that can be produced given output of another good
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What is the production possibilities curve?
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because we have to give up more of something to find the equalizing amount of the other type
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Why does the PPC slope down to the right (neg slope)?
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illustrated by you give up something to obtain something else
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How is opportunity cost illustrated by the PPC?
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you cant have constant costs of production
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Why is the PPC not a straight line?
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increasing marginal costs is a consequence of the PPC
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What assumption does the PPC make about the marginal costs of both goods?
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- labor changing to tech - capital stock becomes larger
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What would cause the PPC to shift to the right?
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-capital stock was destroyed - labor force is smaller -tech is lost
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What would cause the PPC to shift to the left?
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change in total benefit brought about in change in amount consumed
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How do economists define Marginal Benefit?
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change in total cost brought about in change in amount produced
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How do economists define Marginal Costs?
