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120 Cards in this Set
- Front
- Back
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Where does the word "economy" come from?
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"one who manages a household"
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What is scarcity?
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Means society has limited resources and cannot produce all goods people want.
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Management of society's resources is done by ____ because resources are scarce.
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making choices.
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What is economics?
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study of how society manages its scarce resources
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What are the 10 Principls of Economics?
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1. People face tradeoffs
2. The cost of something is what you give up to get it 3. Rational people think at the margin 4. People respond to incentives 5. Trade makes everyone better off 6. Markets are a good organizing method 7. GOvernments can improve economic outcomes 8. Standard of living depends on country's productions 9. Price rises when government prints too much money 10. Society faces a tradeoff between inflation and unemployment. |
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Describe "People Face Tradeoffs"
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To get one thing, we have to give up another.
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What is efficiency?
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society gets most that it can from scarce resources
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What is equity?
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benefits of those resources are distributed fairly
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Describe "The Cost of Something is What you give up to get it"
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Opporunity costs
"Go to college or work?" "Sleep or go to class?" |
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Describe "Rational People Think at the Margin"
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People make decisions by comparing costs and benefits at the margin
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What are marginal changes?
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Small, incremental adjustments to an existing plan
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People make decisions by ___
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comparing costs and benefits at the margin
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Describe "People Respond to Incentives"
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Marginal changes in costs motivate response
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Describe "Trade makes everyone better off"
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People gain from trade
Competition results in gain Trade allows for specialization |
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What does trade allow for?
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specialization and competition
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What is a market economy?
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an economy that allocates resources through decentralized decisions of many firms and households
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What do households decide?
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What to buy and who to work for
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What do Firms decide?
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Who to hire and what to produce
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Who invented the "Invisible Hand" concept
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Adam Smith
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____ guide decision makers to reach outcomes that maximize welfare of society.
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PRICES
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What is market failure?
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when market fails to allocate resources efficiently
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What can cause market failure?
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Externality and Market Power
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What is externality?
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impact of one person on the well-being of a bystander
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What is market power?
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single person influence on market prices
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Ways to compare standard of living?
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- Personal income comparison
- Total market of a value's production |
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What is Productivity
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Amounts of goods produced by each hour of worker time
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Describe the Phillips Curve?
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Inflation and Unemployment are inversely proportional
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Two basic economic models?
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1. Circular Flow Diagram
2. Production Possibilities Frontier |
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What is the circular-flow diagram?
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visual model of economy that shows money flow through HOUSEHOLDS and FIRMS
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What do Firms do?
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Produce and sell goods
Hire means of production |
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What do Households do?
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Buy goods
own/sell factors of production |
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What is the PPF?
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SHows cobo of output given available factors of production (resources)
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Points inside PPF are ____
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inefficient
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Points outside PPF are ___
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not possible
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Points along PPF curve are ___
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alernative production possibilities and reflect radeoffss
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Shape of PPF?
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Curved, negative
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Microeconomics focus on___
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individual parts of econonomy
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___ looks at economy as a whole
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macroeconomics
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What are Positive Statements?
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Describe world as it is, DESCRIPTIVE ANALYSIS
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What are Normative Statements?
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Describe how world should be, PRESCRIPTIVE ANALAYSIS
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The PPD is also the ___
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consumption possibilities frontier
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Consumption WITH trade on the PPF looks like what?
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The point is outside the line
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How to measure comparative costs of production?
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Absolute Terms
Comparative Terms |
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What are Absolute Terms?
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Input costs in dollars
Hours required to produce a unit of output |
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What are Comparitive Terms
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Opportunity cost of one good for another
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What is a good absolute advantage?
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requiring smaller quantity of inputs to produce a good
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What is a good comparative advantaqge?
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Smaller opportunity cost of producing good
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Specialization allows people to have ____
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comparative advantages
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Who were the 2 authors?
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Adam Smith (trade) and David Ricardo (comparative advantage)
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What is a market
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group of buyers and sellers of a good
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Buyers determine ____
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demand
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Sellers determine ___
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supply
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What is a competitive market?
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A market in which many buyers AND sellers, so each only has a negligble effect n market price
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Market Types?
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Perfect Competition
Monopolistic Competition Oligopoly Monopoly |
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Describe Perfect Competition
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Products are the same
Lots of buyers and sellers |
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Describe Monopolistic Competition
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Many sellers
Slightly changed products each seller sets price |
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Describe Oligopoly
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Few sellers
Little competition Price following |
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Describe monopoly
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One seller
government regulation of price |
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What is the Law of Demand?
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Quantity demanded of a good falls when price rises
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Relationship between price and quantity?
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Inverse
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What is the demand curve?
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Graph of relationship between price and demanded quantity
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Decrease in price does what to quantity?
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increases demand of quantity
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Change in quantity demanded leads to what?
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movement *along* the demand curve
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What causes change in quantity demanded?
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change in price
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What causes a shift in the demand curve?
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Any change of quantity demanded at every price
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What factors shift Demand Curve? (main shifts)
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Consumer Income
Price of related goods Tastes Expectations Number of buyers |
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When does demand for a normal good increase?
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as income increases
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When does demand for an inferior good decrease?
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as income increases
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What are substitutes?
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when a fall in the price of one good reduces demand for another
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What are complements?
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when fall in price of oen good icnreases demand of another good
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Which variable represents a movement along the demand curve? Which shift the curve?
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1. Price
2. Everything else |
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What is the amount of a good that sellers are willing and able to sell at a given price?
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Quantity supplied
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What is the law of supply?
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THe quantity supplied of a good rises when price of the good rises
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What is the relationship of price and quantity with supply?
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direct
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What is a supply curve?
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graph of a relationship between price of a good and the quantity supplied
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What is market supply?
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the sum of ALL individual supplies
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With supply, a change in quantity supplied means what?
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-Movement along the supply curve
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What causes a change in quantity supplied?
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change in price
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What causes a SHIFT in supply?
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a change in something other than price
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What cause shift in supply?
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Input prices
Tech Expectations Number of Sellers Weather |
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What represents a movement along supply curve?
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price
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What is equilibrium?
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situation in which the price has reached the level where quantity supplied equals quantity demanded
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On a graph where is price where the supply and demand curves intersect?
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equiblibrium price
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On a graph where is quantity where the supply and demand curves intersect?
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equilibrium quantity
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When does a surplus occur?
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When price is higher than equilibrium price, then quantity supplied is greater than quantity demanded
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When does a shortage occur?
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When price < equilibrium price,
quantity demanded > quantity supplied |
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What do suppliers do in a surplus?
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lower prices
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What do supplies do in a shoftage?
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raise price
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Economics deal with the concept of ____
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scarcity
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Economics is the study of ____
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how society manages its resources
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The principle that "people face tradeoffs" affects
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everyone
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Guns and butter ar eused to represent the classic societal tradeoff between spending on ___
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Defense and Consumer Goods
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The "invisible hand" directs economic activity through ____
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prices
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When the government prevents prices from adjusting naturally to supply and demand,
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it adversely affects allocations of resources
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Laws that restrict smoking in public places are examples of government intended to reduce ____
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exteranlities
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Productivity and standard of living have a ____ relationship
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positive
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Another name for goods and services produced by firms is ____
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output
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Which two groups of decisionmakers are included in simple circular flow diagrams?
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households and firms
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No Change in Demand
+ No Change in Supply |
Price Same
Quantity Same |
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No Change in Demand
+ An Increase in Supply |
Price down
Quantity up |
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No Change in Demand
+ A Decrease in Supply |
Price Up
Quantity Down |
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An increase in demand
+ No change in supply |
Price Up
Quantity Up |
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An increase in demand
+ An increase in supply |
P ambiguous
Quantity up |
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An increase in demand
+ A decrease in supply |
Price Up
Quantity Ambiguous |
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A Decrease in Demand
+ No change in supply |
Price Down
Quantity Down |
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A Decrease in Demand
+ An Increase in Supply |
Price down
Quantity ambigous |
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A Decrease in Demand
+ A decrease in supply |
Price ambigous
Quantity down |
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Chief forms of neoclassicism litetature?
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Drama and Epic
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In Neoclassicism, threat to the individual comes from the ___
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threat of bad government
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Neoclassicism values ____; Romanticism values ___
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reason / emotion
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James II is overthrown by the English during the ___
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Glorious Revolution
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Whigs favor what?
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Balance of power with opposition to absolute rule by king
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Torys favor what?
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absolute monarchy with weak parliament.
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Pope was first a ___, then a ____
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whig, tory
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Types of Satire?
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Horatian (light hearted)
Juvenalian (abrasive) |
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What are the 4 humors?
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phlegmatic, sanguine, melancholic, and choleric
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Describe flegmaticus
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calm and tough
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Describe sanguinicus
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cheerfuly ,lively, lots of blood
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Describe melancholicus
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worrisome, gloomy
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Describe cholericus
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violent, too much choler
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