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28 Cards in this Set

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Economics

Studies how individuals, institutions and society make the optimal or best choices under conditions of scarcity, for which economic wants are unlimited and the means or resources to satisfy those wants are limited.

Economic perspective

Has 3 interrelated features



  • Opportunity cost
  • Utility
  • Marginal analysis

Opportunity Cost

Giving up the next best alternative to the choice that was made

Utility

The satisfaction derived from goods or services

Marginal analysis

Asses how the marginal costs of a decision compare with the marginal benefits

Economic Principle

A highly tested or reliable economic theory




Can be used to predict the likely outcome of an event or action

Other-things-equal

Limits the influence of other factors when generalizing

Economic analysis

Conducted at either Microeconomics or macroeconomic level with positive or normative economics

Microeconomics

Studies the economic behavior of individual, particular markets, firms or industries

Macroeconomics

Looks at the entire economy of aggregates or sectors, such as households, businesses, or government

Positive economics

Focuses on facts and is concered with what is, or the scientific analysis of economic behavior

Normative economics

Suggests what out to be and answers policy questions based on value judgements. Most disagreements among economists involve normative economics

Individual Economizing problem


  • Individuals have limited income to spend
  • Individuals have virtually unlimited wants for more good and services, and higher-quality goods and services
  • The can be shown as a budget line

Budget line

Shows graphically the combinations of two products a consumer can purchase with their money.

Society Economizing problems

Economic resources are scarse

Economic resources

Scarce, natural, or manufactured inputs used to produce goods and services




Sometimes called the factors of production

Factors of production

Land


Labor


Capital


Entrepenurial ability

Land

Factor of Production that is physical land or natural resource

Labor

The contributed Time and abililities of people who are producing goods and services

Capital

Machines, tools, and equipment used to make other goods and services




Also called investment

Entrepreneurial ability

Special human talents of individuals who combine the other factors of production

Production possibilities model


  1. Assumes Full employment
  2. The quantity and quality of resources are fixed
  3. The state of technology does not change
  4. There are two types of goods being produced (consumer and capital)

Production Possibilities Table

Indicates the alternative combinations of goods an economy is capable of producing when it has achieved full employment and optimal allocation. The table illustrates the fundamental choice every economy must make: What quantity of each product it must sacrifice to obtain more of another

Production possibility Curve

Each point on the the curve shows some maximum output of the two goods.



  • Bowed out because of the law of increasing opportunity costs- Goods to produce product A are not transferable to produce product B

Law of increasing opportunity costs

The opportunity cost of producing one more unit of a good increases as more of the good is produced.

Optimal allocation

Resources are devoted tot he best mix of goods to maximize satisfaction in society.




Determined by Assessing Marginal costs and benefits.



  • If Marginal Cost > Marginal benefits, incentive to produce less
  • If Marginal Benefit > Marginal Cost, incentive to produce more
  • If Marginal Benefit = Marginal Cost, Optimal allocation is acheived

Unemployment

When the economy is operating at a point inside the production possibilty curve, it means that resources are not fully employed

Economic Growth

Production possibilities curve shifts outward from economic growth because resources are no longer fixed




Advances in technology




Greater production of capital goods in the present shifts the curve outwards




Trade