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28 Cards in this Set

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  • Back
The Law of Tanstaafl
There is no such thing as a free lunch

- everything has a cost
- description of all economy
free market economy
based on institutions (socialistic economy)
controlled economy
run by the gov't

institution of structure distinguishes economies
Economy
The INSTITUTIONAL STRUCTURE(mental/physical) through which people COORDINATE their needs
rational behavior
to maximize profit
Economics
The study of the EFFICIENT use of LIMITED RESOURCES in the production of goods and services to achieve the MAXIMUM satisfaction of people's UNLIMITED NEEDS
Resources - factors of production
Land/Rent
Labor/Wages
Capital/Interest
Entrepreneuirship/Profit
Scarcity (2 aspects)
limited resources
unlimited wants
Economic Reasoning
making decisions based on calculations of cost and benefit
Opportunity Cost
The value of the best alternative GIVEN-UP when a choice is made
constant change (micro)
similar products using same resources

straight line w/ negative slope
Production Possibility Curve
A curve measuring the maximum combination of outputs that can be obtained with a given number of inputs (limited resources)
Assumptions of the PPC
-amount of resources are fixed

-technology is constant

-all resources are fully and efficiently employed

-the economy is producting only two goods
The Law of Increasing Costs
continuously increasing the output by some proportion requires more than proportional increases in resources, thus higher costs.
The Law of Diminishing Returns
as the use of an output is extended beyong a certain point, its returns will begin to diminish
Law of Comparitive Advantage
MUTUALLY BENEFICIAL exchange is possible when the production costs are different
3 ways to push PPC outward
-techonological advances

-expanding the resource base

-growth of international trade
Specialization
improving quality of product and minimizing cost
Economic Efficiency
Occurs when a given amount of resources produces the most valuable combination of outputs possible
Allocative Efficiency
Production of things people want

WHAT to produce
Productive Efficiency
Producting a given output at the lowest possible cost

HOW to produce
Distributive Efficiency
Distribution of the outpu as evenly as possible

FOR WHOM to produce
Efficiently Maximizing the World Output
-cooperative production based on a division of labor

-specialized production and exchange according to comparative advantage
Division of Labor
Different people specialize in different things
Goals of Macroeconomic Policies
-Price level stability

-Full employment

-Economic growth
Invisible hand
In capitalistic economy - price

FUNCTIONS:

-rationing device

-gives information

-acts as an incentive
Capitalism / Laissez Faire
-PRIVATE ownership of property

-pursuit of PERSONAL goals

-free competition and cosumer sovereignty
Socialism
-pursuit of COLLECTIVE goals

-COLLECTIVE ownership of property

-government control on economic decisions