Economics 201 Ch1

Front 1

Economics

Back 1

The study of how to use limited recourses to satisfy unlimited wants as completely as possible.

Front 2

ceteris paribus

Back 2

other-things-equal assumption

Front 3

Policy economics

Back 3

courses of action based on economic principles and intended to resolve a specific economic problem or goal.

Front 4

Economic goals

Back 4

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

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tradeoffs

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to achieve one, we must sacrifice another.

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aggregate

Back 6

a collection of specific economic units treated as if they were one unit.

Front 7

positive economics

Back 7

focuses on facts and cause-and-effect relationships.

Front 8

normative economics

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incorporates value judgements about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal.

Front 9

fallacy of composition

Back 9

a statement that is valid for an individual or part is not necessarily valid for the larger group or whole.

Front 10

Post Hoc Fallacy

Back 10

"after this, therefore, because of this," fallacy

Front 11

Name the 4 types of recourses

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1. land
2. labor
3. capital (physical/financial)
4. entrepreneurship

Front 12

Name the 4 types of payments

Back 12

1. rent
2. wages
3. interest
4. profits

Front 13

What does the PPC show

Back 13

It shows capabilities, not actual for scarcity, choices, and increased opportunity costs

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direct positive

Back 14

as x goes up, y goes up

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inverse relation

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as x goes up, y goes down

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What does a convex curve show?

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a decreasing slope

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What does a concave curve show?

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an increasing slope

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specialization

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only producing one product

Front 19

What are the 3 fundamentals in an economic system?

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1. what to produce
2. how to produce
3. for whom to produce

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consumers are. . . .

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households

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producers are. . . .

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businesses

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In what ways does price function?

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1. signal
2. motivate
3. ration (to divide/distribute)

Front 23

What are the 2 types of individuals on the circular flow diagram?

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1. businesses
2. households

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What are the 2 types of markets on the circular flow diagram?

Back 24

1. product market
2. resource market

Front 25

What are the 2 types of flow on the circular flow diagram?

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1. financial flow
2. real flow

Front 26

What sets captitalism and socialism apart?

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1. resources
2. decisions made
3. diagram
4. role of government

Front 27

ceteris paribus

Back 27

other-things-equal assumption; what economists use to construct their generalizations

Front 28

Why is the concept of slope important in economics?

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it reflects marginal changes

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What does full production require?

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both productive and allocative efficiency

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productive efficiency

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the production of any particular mix of goods and services in the least costly way

Front 31

allocative efficiency

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the least cost production of that particular mix of goods and services most wanted by society

Front 32

What are the assumptions related to the PPC?

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1. full employment and productive efficiency
2. fixed resources
3. fixed technology
4. 2 goods

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consumer goods

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products that satisfy our wants directly

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capital goods

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products that satisfy our wants indirectly by making possible more efficient production of consumer goods

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marginal

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extra

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When would economic growth occur?

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when there is an increase in supplies of resources, improvements in resource quality, and technological advances.

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pure capitalism/laissez-faire

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government's role would be limited to protecting private property and establishing an enviroment appropriate to the operation of the market system

Front 38

In the U.S.' capitalism, government is involved in what ways?

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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

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command system/socialism/communism

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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

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The resources market is the place where. . . .

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households sell resources and businesses buy resources

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In the circular flow diagram, money flows. . . .

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counterclockwise

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resource market

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the place where resources or the services of resource suppliers are bought and sold

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product market

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the place where goods and services produced by businesses are bought and sold

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demand

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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

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law of demand

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the inverse relationship between price and demand; when one goes up, the other goes down

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diminishing marginal utility

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in any specific time period, each buyer of a product will derive less satisfaction (or utility) from each successive unit of the product consumed

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income effect

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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

Front 48

substitution effect

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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

Front 49

What is and are the determinants of demand?

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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

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normal goods

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products whose demand varies directly with money income

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inferior goods

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goods whose demand varies inversely with money income

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substitute good

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one that can be used in place of another good

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complemenary good

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one that is used together with another good

Front 54

change in demand

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the shift of the demand curve to the left or right

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change in quantity demanded

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movement from one point to another point-from one price-quantity combination to another-on a fixed demand schedule or demand curve

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supply

Back 56

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

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law of supply

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as price rises, the quantity supplied rises; as price falls, the quantity supplied falls

Front 58

What are the determinants of supply?

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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

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change in supply

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a change in the schedule and a shift of the curve to the left or right

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change in quantity supplied

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movement from one point to another on a fixed supply curve

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equilibrium price

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when there is no shortage or surplus, there is no reason for price to change

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rationing function of prices

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the ability of the competitive forces of supply and demand to establish a price at which selling and buying decisionsare consistent

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freedom of enterprise

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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

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freedom of choice

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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

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self-interest

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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

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What does competition require?

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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

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What is the basic regulatory force in the market system?

Back 67

competition

Front 68

how does the division of labor (human specialization) contribute to society's output?

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1. specialization makes use of differences in ability
2. specialization fosters learning by doing
3. specialization saves time

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The Four Fundamental Questions are. . . .

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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?

Front 70

How is Economic Profit caluculated?

Back 70

total revenue - total cost (expense)

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economic costs

Back 71

the payments that must be made to secure and retain the needed amounts of those resources

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normal profit/pure profit

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when net income results; an above normal profit

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dollar votes

Back 73

consumers register their wants via the demand side of the product market

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derived demand

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the demand for a resource that depends on the demand for the products it helps to produce

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economic efficiency

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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

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creative destruction

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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

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invisible hand

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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

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3 Virtues of the market system

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1. efficiency
2. incentives
3. freedom