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28 Cards in this Set
- Front
- Back
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The Law of Tanstaafl
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There is no such thing as a free lunch
- everything has a cost - description of all economy |
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free market economy
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based on institutions (socialistic economy)
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controlled economy
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run by the gov't
institution of structure distinguishes economies |
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Economy
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The INSTITUTIONAL STRUCTURE(mental/physical) through which people COORDINATE their needs
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rational behavior
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to maximize profit
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Economics
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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
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Resources - factors of production
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Land/Rent
Labor/Wages Capital/Interest Entrepreneuirship/Profit |
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Scarcity (2 aspects)
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limited resources
unlimited wants |
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Economic Reasoning
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making decisions based on calculations of cost and benefit
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Opportunity Cost
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The value of the best alternative GIVEN-UP when a choice is made
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constant change (micro)
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similar products using same resources
straight line w/ negative slope |
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Production Possibility Curve
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A curve measuring the maximum combination of outputs that can be obtained with a given number of inputs (limited resources)
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Assumptions 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 producting only two goods |
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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.
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The Law of Diminishing Returns
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as the use of an output is extended beyong a certain point, its returns will begin to diminish
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Law of Comparitive Advantage
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MUTUALLY BENEFICIAL exchange is possible when the production costs are different
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3 ways to push PPC outward
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-techonological advances
-expanding the resource base -growth of international trade |
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Specialization
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improving quality of product and minimizing cost
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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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Production of things people want
WHAT to produce |
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Productive Efficiency
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Producting a given output at the lowest possible cost
HOW to produce |
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Distributive Efficiency
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Distribution of the outpu as evenly as possible
FOR WHOM to produce |
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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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Division of Labor
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Different people specialize in different things
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Goals of Macroeconomic Policies
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-Price level stability
-Full employment -Economic growth |
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Invisible hand
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In capitalistic economy - price
FUNCTIONS: -rationing device -gives information -acts as an incentive |
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Capitalism / Laissez Faire
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-PRIVATE ownership of property
-pursuit of PERSONAL goals -free competition and cosumer sovereignty |
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Socialism
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-pursuit of COLLECTIVE goals
-COLLECTIVE ownership of property -government control on economic decisions |
