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27 Cards in this Set
- Front
- Back
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Define economics
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The study of how people allocate their limited resources to satisfy their unlimited wants.
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Describe the difference between microeconomics versus macroeconomics
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Micro the decision making undertaken by individuals and firms
Macro the behaviour of the economy as a whole |
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Explain rational self-interest
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We assume that individuals do not intentionally make decisions that would leave them worse off.
Incentives encourage us to engage in a particular activity. |
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discuss economic as a science
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Economics is a social science that uses models or theories simplified representations of the real world used as a basis for predictions or explanations.
Ceteris paribus all other things being equal. Economics is called an empirical science. |
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Differentiate between positive versus normative economics
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Positive economics is a statement of what is
Normative economics is a statement of what ought to be. Examples: a) The temperature today was 33 degrees. b) It was very hot today. c) The price level rose by 4.4% last year. d) Inflation eroded living standards last year and should be reduced. |
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Canadas socio-economic goals
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1. Full employment
2. Efficiency efficient allocation of resources 3. Economic growth 4. Price stability 5. Distribution of income |
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Give an example of the scarcity of resources
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Factors of Production or resources:
1. Land natural material 2. Labour human resource 3. Productive (physical) capital factories and equipment 4. Human capital education and training of workers 5. Entrepreneurship managing, organizing factor of production |
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Identify the opportunity cost associated with scarcity
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Opportunity cost = amount given up over amount gained.
The value of the next best alternative (we only look at two alternatives at a time). Cost is always a forgone opportunity. |
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explain the production possibilities curve
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Production possibilities curve is a curve representing all possible combinations of total output that can be produced assuming:
1. Fixed resources 2. Productive efficiency 3. Resources are fully employed (everyone is working) 4. Fixed time period 5. Fixed technology 6. Two products |
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Relate specialization to productivity
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increase capital goods, economic growth, increase production of everything, shifts the production possibilities curve outward
Capital goods - produce other goods more efficiently "future goods" Consumption (consumer) goods decrease consume directly "present goods" Specialization decrease working at a well-defined activity - usually leads to an increase in productivity Absolute advantage decrease being more productive at doing something than anyone else. Comparative advantage decrease.lowest opportunity cost Productive efficiency - produce a good using the least cost. Allocative efficiency - produce products most wanted by society. |
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Identify the basic economic questions
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1. What and how much will be produced?
2. How will it be produced? 3. For whom will it be produced? |
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Classify economies
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A.) Pure Command Economy:
public ownership of resources central authority decides the 3 basic questions and Pure Capitalist Economy: private ownership of resources many people decide the 3 basic questions (circular flow model) |
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Key Features of pure capitalism:
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1. Private ownership of resources
2. Self interest 3. Consumer sovereignty 4. Market and prices 5. Competition 6. Limited Government |
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Describe how a pure capitalist system answers the three basic economic questions.
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1. What and how much will be produced?
2. How will it be produced? 3. For whom will it be produced? In Canada, does the government play a role? Canada is a Mixed Economy DEBATE COMMAND VS CAPITAL ECONOMIES Ex-Soviet |
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Specify the law of demand
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A market refers to all the Law of demand -
As prices fall the corresponding quantity demanded rises (inverse relationship) |
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Distinguish between a change in quantity demanded and a change in demand
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A change in quantity demanded is a movement along the demand curve. Usually happens when price changes.
A change in demand is a shift to a whole new demand curve. Other determinants are: Income normal goods - inferior goods Tastes or preferences Prices of related goods - Substitutes can satisfy a similar want or need - Complements are used together Consumer expectations with respect to future prices Population Changes in demand - shifts to the left or right Changes in quantity demanded movement up & down the demand curve |
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Specify the law of supply
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Law of supply
As prices rise the corresponding quantity supplied rises (positive or direct relationship) Market supply - horizontally sum all the individual firm's supply |
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Distinguish between a change in quantity supplied and a change in supply.
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A change in quantity supplied is a movement along the supply curve. Usually this occurs when price changes.
A change in supply is a whole new supply curve. Other major determinants: Costs of inputs used to produce the product. Technology and productivity Taxes and subsidies increase taxes increase subsides Price expectations Number of firms in the industry Change in supply - shifts to the left or right Change in quantity supplied - movement up & down supply curve |
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where is the equilibruim
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Equilibrium is where quantity demanded and quantity supplied are equal.
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Explain how goods are rationed
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In the pure price system, price rations goods.
Other methods might be: -First come, first served -Political power -Physical force -Culture, religion, physical differences -Lotteries -Coupons |
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explain price ceilings
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Price controls are usually government-mandated minimum or maximum prices that may be charged for goods or services.
Price ceiling is a legal maximum price that may be charged for a good or service. Shortages lead to black markets. When controls are used, the rationing ability of the free market will be rendered ineffective. |
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explain price floor
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Price supports are minimum prices fixed by government that are above equilibrium prices. (minimum wage)
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what is scarcity
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Scarcity is the situation where the ingredients for producing the things that people desire are insufficient to satisfy all wants.
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what is a trade-off
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Trade-off to produce more of one product we will have to produce less of another.
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what is the law of increasing relative cost
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Law of Increasing Relative Cost - is caused by resources not being perfectly adaptable
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what does demand mean
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Demand is a schedule of how much of a good or service people will purchase at any price during a specified time period, other things being equal.
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define supply
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Supply is a schedule showing the relationship between price and quantity supplied for a specified period of time, other things being equal.
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