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30 Cards in this Set

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Scarcity
Condition that there are not enough resources to satisfy human wants.
opportunity cost
Every choice has a cost. An opportunity cost is the cost of the next best alternative. It is what you give up in order to gain something else.
Budget line model for a consumer.

What is happening at point A?
Point A indicates that the consumer is spending all of the money on gas and no money on entertainment
What is happening at point B?
At point B, the consumer is spending all of the money on entertainment
What is happening at point C?
The combination at point C is impossible. The consumer does not have enough money to buy that combination of gas and entertainment.
What is happening at point D?
Point D, as well as any other point on the line, represent a combination of gas and entertainment that can be purchased.
What does the shaded area represent?
The shaded area represents the amount of entertainment that is given up in order to consume more gasoline.
How is the line model changed if gasoline prices rise and entertainment prices fall?
Like ^this^.
On the Production Possibilities Curve Model A, what does point A indicate?
Point A indicates that the refinery is producing no heating oil and all gas.
On the Production Possibilities Curve Model A, what does point B indicate?
Point B indicates that the refinery is procucing all heating oil and no gas.
What is happening at point C?
Point C is impossible. The refinery does not have enough resources to produce that combination.
What is happening at point D?
Any Point on the curve , such as point D, is a combination of heating oil and gasoline that can be produced.
What does the shaded area represent?
The shaded area represents the opportunity costs of producing more heating oil.
Why is the production possibilities curve not a straight line?
The LAW OF INCREASING COSTS causes the bow in the the model.

When resources are taken from the production of one output to produce another output, a loss in resource productiveness is experienced.

Most resources are best suited to produce a particular output. When a resource is taken from what it is best suited for and switched to a use that is is less suited for, it will not be as productive.
What is happening at point B?
At point B, the farmer is producing 40,000 bushels of soybeans and 15,000 bushels of corn. The farmer gained 10,000 bushels of soybeans but gave up 15,000 bushels of corn (from point A) when land was switched from corn to soybeans (law of increasing costs).
What is the Law of Increasing Costs?
The LAW OF INCREASING COSTS causes the bow in the the production possibilities curve model.

When resources are taken from the production of one output to produce another output, a loss in resource productiveness is experienced.

Most resources are best suited to produce a particular output. When a resource is taken from what it is best suited for and switched to a use that is is less suited for, it will not be as productive.
What is a Government Budget Line Model?
The budget line model for a government illustrates the choices government must make in spending tax revenues. The model is a budget line and not a production possibilities curve because the government is spending money.
What is happening at the point inside of the Economy's Production Possibilities Curve?
If an economy is operating inside the curve, it is using its resources inefficiently or wasting resources that could be productive.
If an economic system moves from point A inside the production possibilities curve to point B on the curve, what is the opportunity cost?
The opportunity cost is zero because resources were not taken from another use. Resources that were idle or underutilized are fully put to productive use.
What is economic growth?
Economic growth is the increase in total output of an economy. Economic growth will cause the production possibilities cureve of an economy to shift out.
What causes economic growth?
If new resources become available or current resources are used more efficiently, growth occurs.

An increase in the three factors of production promote growth. If an economy has more land, labor, and capital available, it is able to produce more output. Technology enables an economy to use resources more efficiently through an increase in reswource productivity. Trade enables an economy to focus resources on what it is best at producing.
Use opportunity cost calculations to determine which country should specialize in producing which output.
Germany should specialize in Beer. Argentina should specialize in Beef.
What are the gains from specialization for beer and beef?
200,000 for beer

250,000 for beef
market economic system
In a market system, consumers and producers make economic decisions acting in their own self-interest. If consumers buy more of a good, more resources will flow to that output. Producers produce what customers want. They choose the most efficient mix of resources for an output that will attract consumers in the marketplace.
planned economic system
In a planned economic system, the government decides on resource usage acting in society's best interest. A planned society inefficiently allocates society's resources because the resources are not flowing to the products that society wants.
Capitalism
A capitalistic system is one in which the resources are privately owned. Capitalism is more efficient than socialism because people have income incentives to take risks starting a buisiness, work hard, and be productive.
socialism
In a socialistic system resources are publicly owned. While socialism has a more equal distribution of income than capitalism, workers lack incentives to be productive.
What to produce?
In a market system, this question is answered by consumers when they spend their money or cast their dollar votes.
How to produce it?
In a market system, producers are free to choose the combination of resources that will efficiently produce a product that will meet consumer demand.
For whom to produce it for?
This question is answered by the distribution of income. In a market system, income is determined by how many resources you own and their worth or value.