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33 Cards in this Set

  • Front
  • Back
Define: Economics
The Study of the efficient allocation of scarce resources among competing uses in order to satisfy unlimited human wants
Define: Scarce Resources
The limited quantities of land, capital, labor, and entrepreneurial ability that are never sufficient to satisfy people's virtually unlimited economic wants
Define: Land
All of our natural resources.
EXAMPLES: lakes, forrest, crude oil, coal
Define: Labor
People (Skilled and Unskilled)
Define: Capital
All tools, equipment, buildings, etc. that help produce goods and services
Define: Entrepreneurial Ability
Specialty forms of labor (risk-taker; know-how)
Define: Competing Uses
All resources can be used to produce a variety of goods and services
Define: Macro
studies the "aggregate" or total economy. Buzz words for MACRO: Inflation, CPI (Consumer Price Index), GDP (Gross-Domestic Product), Recession, Unemployment, Growth
Define: Micro
MICRO: studies the individual decision making unit. Examples: A household, a firm, an industry, a unit of government
Define: Normative Economics
Based on value judgements and opinion. EXAMPLE: California wages are TOO low (Buzz Word: TOO).

We SHOULD have access to better information concerning health services and prices. (Buzz word: SHOULD)
Define: Positive Economics
based on facts and can be measured. Doesn't mean it will be true, but it can be proven. "IF/THEN" statements.

EXAMPLE: If the living waige is raised to $8, jobs in CA will be lost.
What are the three fundamental questions all ECONOMIC SYSTEMS MUST ANSWER?
1. What to produce?
2. How to produce it?
3. Who get it?
Define: Capitalism
The most free. They have a free market economy. Private ownership of the resources. "Laissez-Faire" = Let it be. Adam Smith came up with it in book, "The Invisible Hand"
Define: Socialism
Socialism is a mixed economy between capitalism and communism
Define: Communism
Least free. Has a command or planned economy. Resources are owned and controlled by the govt. Those in a communist economy have limited freedoms.
Define: Law of Demand
When a price increases, the quantity demanded is less
Why is "Law of Demand" a "Law?"
1. Common Sense-- buyers like low prices
2. Substitution Effect-- tells us that the demand line will be downward sloping (Price goes up, quantity demanded goes down). (Negative Relationships because if the price of goods goes up, then consumers will look around for a suitable subsititute)
Define: Income Effect
tells us that if prices rise, consumers feel "power" and we will buy less of it
What can cause consumers to "change their demand" for goods and services?
1. Change in consumer taste/preference (Restaurants vs Home-Cooked meals)
2. Change in the number of buyers (Market Structure changes)
3. Change in income (either up or down)
4. Change in the price of a "related" good
5. Change in consumer expectations abut FUTURE income prices and product availability
What does a demand line show?
A demand line (curve) shows the various amounts of a good or service that consumers are both willing and able to purchase at various possible prices (Ceteris Paribus)
What does a supply line show?
a supply line shows the various amounts of a good or service that producers are both willing and able to offer for sales at various possible prices
Define: Law of Supply
If the price of an item goes up, then the Quantity Supply will rise too. This is for higher profits.
List the supply deteriments (What can shift supply up or down)
1. change in the price of a RESOURCE (land, capital, labor) used in the production of the good. An increase in cost makes the supply go down.

2. A change in technology leads to an increase in supply.

3. Taxes, Subsisdies, and Govt. Regulations

4. Change in the number of sellers

5. Mother Nature

6. Profitability of Alternative Production (Milk vs Eggs)

7. Expectations about future prices
Define: Equilibrium
The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.
Define: Disequilibrium
this occurs when prices are either too high or too low
What does the PPC Show?
The PPC (Production Possibilities Curve) shows us the amount of output that a society can produce if it produces only two goods.
Define: Opportunity Cost
In order to get more out of one good, we have to sacrifice units of another.
Define: Law of increasing Opporunity Cost
The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises
What do the PPC Point Represent?
E: Efficiency- any point on the line, represents productive efficiency
U: Unnatainable- given assumptions of fixed resources
E: Efficiency- allocative society picks right mix
I: Inefficiency or unemployment of resources. Labor or capital being idle.
Define: Productive Efficiency
the production of any particular mix of goods and services in the least costly way.
Define: Allocative Efficiency
The least-cost production of that particular mix of goods and services most wanted by society.
Define: Consumer Goods
products that satisfy our wants directly
Define: Capital Goods
products that satisfy our wants indirectly by making possible more efficient production of consumer goods