Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key


Play button


Play button




Click to flip

64 Cards in this Set

  • Front
  • Back
the value of the best alternative that is forgone when choosing an item or activity
opportunity cost
a cost that has already been incurred in the past, cannot be recovered, and thus is irrelevant for present and future economic decisions
sunk cost
states that the individual with the lowest opportunity cost of producing a particular output should specialize in producing that output
law of comparative advantage
the ability to produce something using fewer resources than other producers use
absolute advantage
the ability to produce something at a lower opportunity cost than other producers face
comparative advantage
the direct exchange of one good for another without using money
organizing production of a good into its separate tasks
division of labor
focusing work effort on a particular product or a single task
specialization of labor
four assumptions when calculating the economy's production abilities
1. two broad categories of products: consumer and capital (physical and human)
2. focus on a given period (ie. year)
3. resources have fixed quality and quantity
4. technology doesn't change
a curve showing alternative combinations of goods that can be produced when available resources are used fully and efficiently; a boundary between inefficient and unattainable combinations
production possibilities frontier (PPF)
the condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another
to produce each additional increment of a good, a successively larger increment of an alternative good must be sacrificed if the economy's resources are already being used efficiently
law of increasing opportunity cost
an increase in the economy's ability to produce goods and services; an outward shift of the production possibilities frontier
economic growth
the set of mechanisms and institutions that resolve the what, how, and for whom questions
economic system
some criteria used to distinguish among economic systems
1. who owns the resources
2. what decision-making process is used to allocate resources and products
3. what types of incentives guide economic decision makers
an economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets
pure capitalism
an owner's right to use, rent, or sell resources or property
private property rights
flaws of pure capitalism
1. no central authority to enforce rules
2. no help for those without resources
3. monopolies
4. harmful side affects (pollution)
5. no incentive for public goods
an economic system characterized by the public ownership of resources and centralized planning
pure command system
flaws in pure command system
1. economy running is too complicated for all resources to be used efficiently
2. less incentive for highest efficiency, therefore wasted resources
3. central plans biased toward central planners
4. limited variety of products
5. less personal freedom in economic choices
an economic system characterized by the private ownership of some resources and the public ownership of other resources; some markets are unregulated and others are regulated
mixed system
the satisfaction or sense of well-being received from consumption
cash or in-kind benefits given to individuals as outright grants from the government
transfer payments
three broad spending categories
1. durable goods
2. nondurable goods
3. services
four economic decision makers
1. households
2. firms
3. government
4. rest of the world
someone who reduces transaction costs by contracting for many products rather than one
development of large-scale factory production that began in Great Britain around 1750 and spread to the rest of Europe, North America, and Australia
Industrial Revolution
four advantages of factories
1. more efficient division of labor
2. direct supervision of production
3. reduced transportation cost
4. use of bigger machinery
economic units formed by profit-seeking entrepreneurs who use resources to produce goods and services for sale
a firm with a single owner who has the right to all profits and who bears unlimited liability for the firm's debts
sole proprietorship
a firm with multiple owners who share the firm's profits and bear unlimited liability for the firm's debts
a legal entity owned by stockholders whose liability is limited to the value of their stock
any increase in the market value of a share that occurs between the time the share is purchased and the time it is sold
realized capital gain
two types of transfer payments
1. cash transfers (monetary payments)
2. in-kind transfers (goods and services, like food stamps)
four reasons why household production still exists
1. no skills or special resources required
2. avoid taxes
3. reduce transaction costs
4. technological advances increase productivity
technological change spawned by the invention of the microchip and the Internet that enhanced the acquisition, analysis, and transmission of information
Information Revolution
a car program developed by IBM that recognizes speech, sends e-mails, sends and receives voicemail, recognizes lip movements, provides directions, weather conditions, traffic, and flight delays
"Butler in a Dashboard"
offices with no permanent locations
virtual offices
a condition that arises when the unregulated operation of markets yields socially undesirable results
market failure
roles of the government
1. enforce rules
2. promote competition
3. regulate monopolies
4. provide public goods
5. deal with externalities
6. more equally distribute income
7. take care of the economy
a sole producer of a product for which there are no close substitutes
one firm that can serve the entire market at a lower per-unit cost than can two or more firms
natural monopoly
a good that is both rival in consumption and exclusive, such as pizza
private good
a good that, once produced, is available for all to consume, regardless of who pays and who doesn't; such a good is nonrival and nonexclusive, such as national defense
public good
the two things that private goods are and public goods aren't
exclusive and rival in consumption
a cost or a benefit that falls on a third party and is therefore ignored by the two parties to the market transaction
the use of government purchases, transfer payments, taxes, and borrowing to influence economy-wide activity such as inflation, employment, and economic growth
fiscal policy
regulation of the money supply to influence economy-wide activity such as inflation, employment, and economic growth
monetary policy
three issues with government
1. difficulty in defining government objectives
2. voluntary exchange vs. coercion
3. no market prices
taxes that are deducted from paychecks to support Social Security and Medicare
payroll taxes
those with greater ability to pay, such as those with higher income or those who own more property, should pay more taxes
ability-to-pay tax principle
those who receive more benefits from the government program funded by a tax should pay more taxes
benefits-received tax principle
the distribution of tax burden among taxpayers; who ultimately pay the tax
tax incidence
the tax as a percentage of income remains constant as income increases; also called a flat tax
proportional tax
the tax as a percentage of income increases as income increases
progressive taxation
the percentage of each additional dollar of income that goes to the tax
marginal tax rate
the tax as a percentage of income decreases as income increases
regressive taxation
the value of a country's exported goods minus the value of its imported goods during a given period
merchandise trade balance
a record of all economic transactions between residents of one country and residents of the rest of the world during a given period
balance of payments
foreign money needed to carry international transactions
foreign exchange
a measure of the price of one currency in terms of another
exchange rate
a tax on imports
a legal limit on the quantity of a particular product that can be exported or imported
three automakers
Big Three (General Motors, Ford, Chrysler)