Economic 201

Front 1

The law of Tanstaafl

Back 1

“ there is no such thing as a free lunch”

Front 2

Economy

Back 2

the "institutional structure" (mental, physical) through which people "coordinate" their needs.

Front 3

agricultural economy

Back 3

has large extended economy ( all the economic groups & members)

(family is most important)

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Economics (profit)

Back 4

is the social science concerned with the efficient use of limited resources to a achieve maximum satisfaction of unlimited human material wants.

Front 5

efficiency comes from limited resources and unlimited wants

Back 5

-consumer engages in rational behaviors to maximize satisfaction
micro analysis
macro analysis
global analysis

Front 6

Elements of the scientific methods/ formulation of a theory

Back 6

observation of the real world behavior
formulation of a hypothesis
testing of the hypothesis
accepting or rejecting the hypothesis
if accepted the hypothesis turns into a theory

Front 7

Hypothesis

Back 7

educated guess or a tentative explanation of cause and effect that requires testing

Front 8

Futures of the economic perspective

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scarcity and choice
rational behavior
marginalism
resources factors of production ( related to rational behavior)

Front 9

scarcity and choice

Back 9

has two aspects
limimited resources
unlimited wants

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rational behavior

Back 10

always focusing on the cost to maximize benefit (benefit bigger than the cost)
rational consumers

Front 11

resources factors of production

Back 11

land/rent
labor/wages
capital/ interest
entrepreneurship/ profit

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Economic reasoning

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making decision based on the calculation of costs and benefits. (rational behavior)

Front 13

Entrepreneurship

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the particular talent that some people have for organizing the resources of land labor and capital with the intention of making profit (risk taker)

entrepreneur- a person who takes risk by combining labor, capital, & land

-should have incentives in place to develop entrepreneurship

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Opportunity cost

Back 14

the value of the best alternative given-up when a choice is made.

Front 15

The coordination problems

Back 15

what to produce? -produce what people want
how to produce?- produce with the lowest (minimal) produced cost
for whom to produce? produced to the highest possible price ( most profit)

Front 16

Mixed economy

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Whenever there is capitalism and govern steps in to inteven

Front 17

maximum combination

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you need to reduce some of the limited resources to gain on the (individual-micro) goal.

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Constant trade off

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it happens at micro level on two similar products and same resources.

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no constant trade off

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when the resources and the products are different from each other.

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Production possibility table

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lists alternative maximum combination/ opportunity cost of each choice

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Assumption of the ppc

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amount of resources are fixed
technology is constant
all resources are fully and efficiently employed
the economy is producing only two goods.

Front 22

Production possibility curve

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a curve measuring the maximum combination of outputs that can be obtained witha given numbers of inputs .

Front 23

The law of increasing costs

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continuously increasing the output by some proportion requires more than proportional increases in resources thus higher costs. (butter)

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The law of dinimishing returns

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as the use of an input is extended beyond a certain point, its returns will begin to diminish. (guns)

Front 25

Factors that push the ppc outwards ( expand to get to point X)

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technological advances
expanding the resource base
growth of international trade

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The law of comparative advantage

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mutually beneficial exchange is possible when production costs are different. (David Ricardo- 1817)

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Economic efficiency

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occurs when a given amount of resources produces the most valuable combination of outputs possible.

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allocative efficiency

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the use of resources to produce what people want... (why? because motive is profit. Also it relates to what to produce?)

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Productive efficiency

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producing at the lowest possible cost. (hows? )

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Distributive efficiency

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distributing the production as evenly as possible. (Whom? e.g. government distribution)

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Efficiently maximizing the world output

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-Cooperative production based on a division of labor

-Specialized production and exchange according to comparative advantage.

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(subjective)Normative economics

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Is the study of what the gaols of the economy should be.

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Positive economics

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the study of what is and how the economy works.
e.g 20 % population shares 80% of the economy

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Microeconomics

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is the study of how individual choices are made and how they are influenced by economic forces.

Front 35

Macroeconomics

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the study of inflation, unemployment, business, cycles, and economic growth. it focuses on a aggregate relationship or the economy as a whole

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Capitalism-Laissez Faire

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(hands off policy- none interference of the government- Adam smith-1776- wrote a book named wealth of nations)

Pursuit of personal goals
ownership of personal property
free markets and consumer sovereignty

(When government interferes it takes away the incentive of working hard -Adam smith)

Front 37

Functions of “price”

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- rationing device
- gives information
is an incentive

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Socialism

Back 38

pursuit of collective goals
collective ownership of property
the central government decides what ,how to produce and for whom to produce.

Front 39

Goals of macroeconomic policies

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full employment (does not mean zero unemployment)
price level stability
economic growth

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the king in the capitalist world

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Consumer (due to profit motive)

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market mechanism

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In a capitalistic economy the ( with the use of the invisible hand(price)) decides what, how and for whom to produce.