Econ 121 Part 1 - What Is Economics? (For Test 1)

Front 1

Economy

Back 1

The set of institutions and processes through which a society organizes the production, distribution, and accumulation of goods and services.

Front 2

Economics

Back 2

The social science that studies the production, consumption, and distribution of goods and services.

Front 3

Market Economy

Back 3

An economy in which decisions about the production and consumption are made by individual producers and consumers.

Front 4

Invisible Hand

Back 4

The way in which pursuit of individual self interest can lead to good results for a society as a whole.

Front 5

Microeconomics

Back 5

The branch of economics that studies how people make decisions and how these decisions interact.

Front 6

Market Failure

Back 6

When the pursuit of self-interest leads to a bad result for society as a whole.

Front 7

Recession

Back 7

A downturn in the economy (decrease in GDP for two+ quarters)

Front 8

Macroeconomics

Back 8

The branch of economics that is concerned with the overall ups and downs in the economy.

Front 9

Economic Growth

Back 9

Increasing capacity of an economy to produce goods and services.

Front 10

Individual choice: includes 4 principles

Back 10

The decision by an individual of what to do and therefore what not to do.
1)Resources are scarce= always necessary to make choices
2)Real cost is what you must give up to get it = All costs are opportunity costs
3)Questions are usually "how much?" = questions at the margin
4)People usually exploit opportunities to make themselves better off = people respond to incentives

Front 11

capitalist

Back 11

private ownership of capital (plant/land/equipment) by particular persons

Front 12

purpose of an economy

Back 12

1)provide material needs of societal members
2)provide access to things people want

Front 13

resource

Back 13

anything that can be used to produce something else

Front 14

scarce resources

Back 14

when there aren't enough resources to satisfy all the way a society wants to use them.

Front 15

opportunity cost

Back 15

what one must give up in order to get what they choose; every choice involves sacrifice

Front 16

capitalist

Back 16

private ownership of capital (plant/land/equipment) by particular persons

Front 17

purpose of an economy

Back 17

1)provide material needs of societal members
2)provide access to things people want

Front 18

opportunity cost

Back 18

what one must give up in order to get something

Front 19

trade-off

Back 19

when one compares the costs and benefits of doing something

Front 20

marginal decisions

Back 20

questions of how much in terms of a bit more or a bit less

Front 21

marginal analysis

Back 21

a study of marginal decisions

Front 22

incentive

Back 22

anything that offers rewards to people who change their behavior

Front 23

interaction of choices: 5 principles

Back 23

A feature in most economic situations. Causes results different from what the individuals intend.
1)There are gains from trade
2)Markets move toward equilibrium
3)Resources should be used as efficiently as possible to achieve society's goals
4)Markets usually lead to efficiency
5)When markets don't achieve efficiency, government intervention can improve society's welfare

Front 24

trade

Back 24

providing goods and services to others and receiving goods or services in return

Front 25

gains-from-trade

Back 25

get more of what one wants through trade than self-sufficiency

Front 26

specialization

Back 26

each person specializes in the task they are good at performing; causes gains-from-trad

Front 27

why does specialization increase wealth?

Back 27

1)Everyone does what their good at = have a comparative advantage
2)No one is born with the same skills/ abilities

Front 28

equilibrium

Back 28

when no individual could be better off by doing something different

Front 29

efficient

Back 29

market produce as much as they can at lowest possible cost.
aka: the market takes all opportunities to make people better off w/o making other people worse off

Front 30

equity

Back 30

when every individual gets their fair share

Front 31

Principles that underlie economy-wide interactions

Back 31

1)One person's spending is another's income
2)Overall spending sometimes gets out of line with the economy's capacity
3) Government policies can change spending

Front 32

economic model

Back 32

A simplified representation of a real situation that is used to better understand real-life situations.

Front 33

other-things-equal-assumption

Back 33

all relevant factors remain unchanged

Front 34

production possibility frontier

Back 34

shows the maximum quantity of one good that can be produced given the quantity of another produced.
-illustrates the trade-offs in an economy

Front 35

technology

Back 35

the technical means of producing goods and services

Front 36

factors of production

Back 36

resources used to produce goods and services

Front 37

comparative advantage

Back 37

when one has a lower opportunity cost that other individuals/nations

Front 38

absolute advantage

Back 38

an activity a nation/individual can do better than others

Front 39

barter

Back 39

form of trade where parties exchange goods/services directly for other goods/services that they want

Front 40

circular-flow diagram

Back 40

represents transactions in an economy by flow around a circle

Front 41

household

Back 41

a person or group of people that share their income

Front 42

firm

Back 42

an organization that produces goods/services

Front 43

Market for goods and services

Back 43

where households buy goods and services from firms

Front 44

factor market

Back 44

where firms buy the resources they need to produce goods and services

Front 45

income distribution

Back 45

the way in which total income is allocated among the owners of the various factors of production.

Front 46

Positive economics

Back 46

The branch of economic analysis that describes the way the economy should work

Front 47

normative economics

Back 47

makes prescriptions about the way the economy should work

Front 48

Determining comparative advantage

Back 48

1)Calculate the opportunity costs based off the slope
2)Determine who has comparative advantage in producing each good
3)Plot PPF graph