Micro Ii

Front 1

Define: Economics

Back 1

The Study of the efficient allocation of scarce resources among competing uses in order to satisfy unlimited human wants

Front 2

Define: Scarce Resources

Back 2

The limited quantities of land, capital, labor, and entrepreneurial ability that are never sufficient to satisfy people's virtually unlimited economic wants

Front 3

Define: Land

Back 3

All of our natural resources.
EXAMPLES: lakes, forrest, crude oil, coal

Front 4

Define: Labor

Back 4

People (Skilled and Unskilled)

Front 5

Define: Capital

Back 5

All tools, equipment, buildings, etc. that help produce goods and services

Front 6

Define: Entrepreneurial Ability

Back 6

Specialty forms of labor (risk-taker; know-how)

Front 7

Define: Competing Uses

Back 7

All resources can be used to produce a variety of goods and services

Front 8

Define: Macro

Back 8

studies the "aggregate" or total economy. Buzz words for MACRO: Inflation, CPI (Consumer Price Index), GDP (Gross-Domestic Product), Recession, Unemployment, Growth

Front 9

Define: Micro

Back 9

MICRO: studies the individual decision making unit. Examples: A household, a firm, an industry, a unit of government

Front 10

Define: Normative Economics

Back 10

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)

Front 11

Define: Positive Economics

Back 11

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.

Front 12

What are the three fundamental questions all ECONOMIC SYSTEMS MUST ANSWER?

Back 12

1. What to produce?
2. How to produce it?
3. Who get it?

Front 13

Define: Capitalism

Back 13

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"

Front 14

Define: Socialism

Back 14

Socialism is a mixed economy between capitalism and communism

Front 15

Define: Communism

Back 15

Least free. Has a command or planned economy. Resources are owned and controlled by the govt. Those in a communist economy have limited freedoms.

Front 16

Define: Law of Demand

Back 16

When a price increases, the quantity demanded is less

Front 17

Why is "Law of Demand" a "Law?"

Back 17

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)

Front 18

Define: Income Effect

Back 18

tells us that if prices rise, consumers feel "power" and we will buy less of it

Front 19

What can cause consumers to "change their demand" for goods and services?

Back 19

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

Front 20

What does a demand line show?

Back 20

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)

Front 21

What does a supply line show?

Back 21

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

Front 22

Define: Law of Supply

Back 22

If the price of an item goes up, then the Quantity Supply will rise too. This is for higher profits.

Front 23

List the supply deteriments (What can shift supply up or down)

Back 23

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

Front 24

Define: Equilibrium

Back 24

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.

Front 25

Define: Disequilibrium

Back 25

this occurs when prices are either too high or too low

Front 26

What does the PPC Show?

Back 26

The PPC (Production Possibilities Curve) shows us the amount of output that a society can produce if it produces only two goods.

Front 27

Define: Opportunity Cost

Back 27

In order to get more out of one good, we have to sacrifice units of another.

Front 28

Define: Law of increasing Opporunity Cost

Back 28

The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises

Front 29

What do the PPC Point Represent?

Back 29

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.

Front 30

Define: Productive Efficiency

Back 30

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

Front 31

Define: Allocative Efficiency

Back 31

The least-cost production of that particular mix of goods and services most wanted by society.

Front 32

Define: Consumer Goods

Back 32

products that satisfy our wants directly

Front 33

Define: Capital Goods

Back 33

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