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78 Cards in this Set

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Economics
The study of how to use limited recourses to satisfy unlimited wants as completely as possible.
ceteris paribus
other-things-equal assumption
Policy economics
courses of action based on economic principles and intended to resolve a specific economic problem or goal.
Economic goals
1. economic growth
2. full employment
3. price-level stability
4. economic freedom
5. equitable distribution of income
6. economic securtiy
7. balance of trade
tradeoffs
to achieve one, we must sacrifice another.
aggregate
a collection of specific economic units treated as if they were one unit.
positive economics
focuses on facts and cause-and-effect relationships.
normative economics
incorporates value judgements about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal.
fallacy of composition
a statement that is valid for an individual or part is not necessarily valid for the larger group or whole.
Post Hoc Fallacy
"after this, therefore, because of this," fallacy
Name the 4 types of recourses
1. land
2. labor
3. capital (physical/financial)
4. entrepreneurship
Name the 4 types of payments
1. rent
2. wages
3. interest
4. profits
What does the PPC show
It shows capabilities, not actual for scarcity, choices, and increased opportunity costs
direct positive
as x goes up, y goes up
inverse relation
as x goes up, y goes down
What does a convex curve show?
a decreasing slope
What does a concave curve show?
an increasing slope
specialization
only producing one product
What are the 3 fundamentals in an economic system?
1. what to produce
2. how to produce
3. for whom to produce
consumers are. . . .
households
producers are. . . .
businesses
In what ways does price function?
1. signal
2. motivate
3. ration (to divide/distribute)
What are the 2 types of individuals on the circular flow diagram?
1. businesses
2. households
What are the 2 types of markets on the circular flow diagram?
1. product market
2. resource market
What are the 2 types of flow on the circular flow diagram?
1. financial flow
2. real flow
What sets captitalism and socialism apart?
1. resources
2. decisions made
3. diagram
4. role of government
ceteris paribus
other-things-equal assumption; what economists use to construct their generalizations
Why is the concept of slope important in economics?
it reflects marginal changes
What does full production require?
both productive and allocative efficiency
productive efficiency
the production of any particular mix of goods and services in the least costly way
allocative efficiency
the least cost production of that particular mix of goods and services most wanted by society
What are the assumptions related to the PPC?
1. full employment and productive efficiency
2. fixed resources
3. fixed technology
4. 2 goods
consumer goods
products that satisfy our wants directly
capital goods
products that satisfy our wants indirectly by making possible more efficient production of consumer goods
marginal
extra
When would economic growth occur?
when there is an increase in supplies of resources, improvements in resource quality, and technological advances.
pure capitalism/laissez-faire
government's role would be limited to protecting private property and establishing an enviroment appropriate to the operation of the market system
In the U.S.' capitalism, government is involved in what ways?
it provides rules for economic activity, promotes economic stability and growth, provides certain goods and services that would otherwise be underproduced, or not produced at all, and modifies the distribution of income
command system/socialism/communism
government owns most property resources and economic decision making occurs through a central economic plan; a central planning board makes all decisions concerning use of resources, composition, and distribution of output, and organization of product
The resources market is the place where. . . .
households sell resources and businesses buy resources
In the circular flow diagram, money flows. . . .
counterclockwise
resource market
the place where resources or the services of resource suppliers are bought and sold
product market
the place where goods and services produced by businesses are bought and sold
demand
shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time
law of demand
the inverse relationship between price and demand; when one goes up, the other goes down
diminishing marginal utility
in any specific time period, each buyer of a product will derive less satisfaction (or utility) from each successive unit of the product consumed
income effect
indicates that a lower price increases the purchasing power of a buyer's money income, enabling the buyer to purchase more of the product than she or he could buy before
substitution effect
suggest that at a lower price, buyers have the incentive to substitute what is now a less expensive product for similar products that are now relatively more expensive; the product whose price has fallen is now a better deal
What is and are the determinants of demand?
Other factors that affect purchases:
1. consumers' tastes/preferences
2. the number of consumers in the market
3. consumers' incomes
4. the prices of related goods
5. consumer expectations about future prices and incomes
normal goods
products whose demand varies directly with money income
inferior goods
goods whose demand varies inversely with money income
substitute good
one that can be used in place of another good
complemenary good
one that is used together with another good
change in demand
the shift of the demand curve to the left or right
change in quantity demanded
movement from one point to another point-from one price-quantity combination to another-on a fixed demand schedule or demand curve
supply
shows the amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period
law of supply
as price rises, the quantity supplied rises; as price falls, the quantity supplied falls
What are the determinants of supply?
1. resource prices
2. technology
3. taxes and subsidies
4. prices of other goods
5. price expectations
6. the number of sellers in the market
change in supply
a change in the schedule and a shift of the curve to the left or right
change in quantity supplied
movement from one point to another on a fixed supply curve
equilibrium price
when there is no shortage or surplus, there is no reason for price to change
rationing function of prices
the ability of the competitive forces of supply and demand to establish a price at which selling and buying decisionsare consistent
freedom of enterprise
ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets
freedom of choice
enables owners to employ or dispose of their property and money as they see fit; allows workers to enter any line of work for which they are qualified; ensures that consumers are free to buy goods and services that best satisfy their wants
self-interest
the motivating force of all the various economic units as they express their free choices; each economic unit tries to do what is best for itself
What does competition require?
1. independtly acting sellers and buyers operating in a particular product or resource market
2. freedom of sellers and buyers to enter or leave markets, on the basis of their economic self-interest
What is the basic regulatory force in the market system?
competition
how does the division of labor (human specialization) contribute to society's output?
1. specialization makes use of differences in ability
2. specialization fosters learning by doing
3. specialization saves time
The Four Fundamental Questions are. . . .
1. What goods and services will be produced?
2. How will the goods and services be produced?
3. Who will get the goods and services?
4. How will the system accomodate change?
How is Economic Profit caluculated?
total revenue - total cost (expense)
economic costs
the payments that must be made to secure and retain the needed amounts of those resources
normal profit/pure profit
when net income results; an above normal profit
dollar votes
consumers register their wants via the demand side of the product market
derived demand
the demand for a resource that depends on the demand for the products it helps to produce
economic efficiency
means obtaining a particular output of product with the least input of scarce resources, when both output and resource inputs are measured in dollars and cents
creative destruction
the creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business
invisible hand
the tendency of firms and resource suppliers that seek to further their own self-interests in competitive markets to also promote the interest of society
3 Virtues of the market system
1. efficiency
2. incentives
3. freedom