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46 Cards in this Set
- Front
- Back
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What are economics ?
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The study of how to best allocate scarce resources among competing uses in the best possible way -allocation and scarcity are key points -dismal science |
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what is scarcity ?
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lack of available sources
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what is opportunity cost?
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value of the best next thing or option when making an economic decision
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what is rational action?
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-we assume that people will make rational decision -assume people will benefit and opportunity cost when making economic decisions -we use the "average" person -big decisions vs. small decisions |
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what is normative economics?
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-opinioned based -value judgment --> what should be -example : unemployment should be lower |
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what is positive economics ?
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-issues that are observable -statistical; can be proven with facts -example : unemployment rate is 9.2 % |
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what does ceteris paribus mean? What is it used for in economic models of consumer behavior?
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assumption that nothing else is changing -used to predict consumer responses to price increases by ignoring all other possibilities |
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what are Factors of Production?
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resources used to produce goods and services
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What are the four categories of Factors of Production?
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1.land 2.labor 3.capital 4. entrepreneurship |
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What is land in respect to the factors of production?
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physical property/natural resources |
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what is labor in respect to the factors of production?
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physical/mental labor |
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what is capital in respect to the factors of production?
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plant and equipment used to provide the goods and services |
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what is entrepreneurship in respect to the factors of production ?
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-organizing of the land, labor, and capital -leadership -management/administration |
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What are the three basic economic questions?
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1. What to produce? 2. How to produce it? 3. For whom to produce it for? |
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Karl Marx is associated with which type of market mechanism ? Why ?
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He is associated with central planning, or having the government involved with deciding what gets produced, how it gets produced, and for who it is for. He favors this option because he believes it would minimize the gap between the rich and the poor. Additionally the idea would be that everyone gets what they need despite their abilities or opportunities. |
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What are two examples of countries that practice central planning as their form of market mechanism ?
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1. North Korea 2. Cuba |
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Adam Smith is associated with which type of market mechanism? Why ?
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He favors a free market mechanism and specifically supports the concept of laissez-faire in which the government steps aside and lets the market decide what gets produced and who gets to buy it (i.e. those who have ability and willingness to pay for it). He favors this option because he claimed the market was a good enough entity to efficiently decide what goods to produce, how to produce them, and how to distribute them.
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Does President Obama prefer a market-based economy of central planning economy?
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He has stated that he believes MORE government intervention is needed and less market reliance -believes in a more central planning economy |
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What is the most fundamental concept in economics?
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THERE IS NO FREE LUNCH! -there are ALWAYS costs (opportunity costs) -examples : tax rebates (money that could be spent on other things but is instead being given back to the individual after filing one's taxes) |
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What is the central problem of scarcity ?
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our wants exceed our needs
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What is critical for production to continue and expand ( in relation to the first of the three basic economic questions)? Why?
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(reminder it's WHAT to produce) Technology because more output can be produced |
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What are production possibilities ? What is the production possibility curve (PPC) ?
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-PPC are combinations that can be used to maximize production -PPC represents the alternative combos of goods and services that could be produced with all available resources and technology in a given time period -economic menu in which one specific combo of goods must be selected -Also known as Production Possibility Frontier (PPF) |
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Describe a Production Possibility Curve (PPC), also known as a Production Possibility Frontier (PPF)
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-shows the combination of two diff commodities produced with the same given resources -factors of production are fixed along the given PPF curve -PPF is a snapshot in time – changes in the factors of production need to occur to move to a different PPF curve -if you are on that curve, you're using full use of resources (yay!) -PPF increases with more resources and new technology |
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What is the most important factor of the PPC and why ?
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Capital costs/goods -you have to produce a certain amount of capital goods to keep the economy growing over time and have stuff for future generations to work with -...which means it can't be just all consumer goods -it has to be things that can provide future workers capital to work with -example : buildings |
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What are some specific PPF characteristics ? What does it mean when a point is to the left of the PPF? What about the right ? What about on the curve?
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-if you are on the curve of the PPF, that means you are using all available resources to the full max and efficiently -Any point inside (to the left) of the PPF means that some means of production are not being used (Ex: unemployment or closed plants) -Any point outside of the PPF (to the right) is not attainable with the current mix of resources |
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What is incentive? What is its affect on the economy ?
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-Distribution on need rather than work effort may result in less work effort overall which would mean less output to distribute
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What is a peace dividend ?
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-increase in nonmilitary output -one specific mix of output is optimal for a country -best possible allocation of resources across competing uses -locating and producing that optimal mix -remember, especially during and after WWII the US started selling a lot of military production due to fear of another attack |
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What is economic growth ? How does an economic growth expand? |
-production possibilities expand outward (icrease in output [real Gross Domestic Profit]) -to expand, we must invest -economic growth occurs when we aquire more resources or better technology -improve the standard of living -Increased labor, land or entrepreneurship |
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What is investment ?
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-we must allocate some of our scarce resources to investment rather than current consumption -Producing new plant and equipment (capital) -changes in inventory -Need to replace capital that wears out |
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What is the optimal mix?
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-only one best possible mix of output at any given time -economic goal of society |
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What is the market mechanism ? Which one of the three basic economic questions does this answer ?
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-every choice involves conflicts and trade offs -using market prices and sales to decide what to produce and how much of it -answers the whom question --> those who are willing to pay can attain the goods in service -production sells indicate which goods are being sold more and thus tells the producers which goods to make more of |
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What is lassez-faire policy ? |
-Adam Smith -hands off approach -government is hardly involved, we let the market decide what producers will sell and how much of it -often associated with the conservative view |
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What is central planning ?
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-Karl Marx -alternative to the market mechanism -communist state -government assumed what goods were produced and their prices and even who got them (aka government controls it all) -examples : North Korea and Cuba |
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what is a mixed economy ?
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A combination of the market mechanism and central planning
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What is a market failure ?
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This happens when the market mechanism (free market) doesn't produce the best answers (optimal mix) to the questions WHAT, HOW, and for WHOM -the market doesn't produce the "right" mix of output --> society wants to be along a different point on the PPF -externalities like pollution |
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What is government failure ?
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Government intervention fails to improve (or even worsen) economic outcomes -visible hand of government not guaranteed to be better than invisible hand of the free market -wrong point of the PPF or even worse inside the PPF -might even reduce the total amount of output due to over-regulation |
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What is the difference between macroeconomics and microeconomics ?
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-macroeconomics focuses on economy as a whole; the big picture--> doesn't worry about the well-being of indivduals or groups -microeconomics focuses on indivudlas, groups, and government agencies that make up the bigger economy--> behavior of individual economic actor |
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what is the distinction between macroeconomics and microeconomics ?
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Macroeconomics outcomes depends on the micro behaviors of individuals, and macro behavior is affected by micro outcomes -basically, the two are needed to understand the other |
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As rich as America is, how can our resources possibly be "scarce"?
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all resources are finite, time is finite
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When your children are the same age you are now, do you think their standards of living will be much better? worse? the same?
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the traditional view in economy is that conditions will improve somewhat (about 3% a year)
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why might it be necessary to reduce consumer spending in order to attain faster economic growth ? Would it be worth the sacrifice ?
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if you invest more money in capital (plants and equipment used to make production), then production can increase, which in turn means our economic growth will increase as well
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In a purely private market economy, how is the "for whom" question answered ? Is it optimal ?
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Whoever wants to buy it can buy it, it simply depends on society's values. Money rules !
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Why doesn't North Korea reduce its military and put more resources into food production ?
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North Korea is a central society which means the government will decide on what to spend their money on and in this case military use is a main, if not THE main concern for North Korea
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If taxes on the rich were raised to provide more housing for the poor, how would the willingness to work be affected ? What would happen to the total output ?
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Too much taxing will effect people's willingness to work. If the rich see that they get taxed more because they make more money, then they might hold back and not work as hard of effectively.
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What kind of knowledge must central planners posses in order to manage an economy efficiently?
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central planners look for a way to control the economy by deciding what gets manufactured, how much of it gets made, and who gets to buy it. In order to do this one would have to look at what product a group needs, how much of it should be made to meet the needs of the group and how to distribute it.
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