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31 Cards in this Set

  • Front
  • Back

Factors influencing switch to market economy

1.) Monetization- division of labor made bartering tough. Monetization allowed for division of lab and easier trade/economic activity

2.) Urbanization - allowed for factories

3.) Exploration - new goods to market

4.) Rise of Merchant class - entrepreneurship

5.) Breakdown of manorial system - better agriculture and allowed for people to work in factories

Law of increasing opportunity costs

As more quantity is produced, opportunity cost will increase per additional unit

Principle of Scarcity

PPF shows maximum production and opportunity costs exist as increase quantities.

Positive Economics

How market really works

Normative economics

How we think market should be -- max efficiency


unlimited desires, maximum resources

Economic System #1: Tradition

follow parents career path, etc.

Used to be more prominent

Economic System #2: Command

Government decides

- china, north korea, cuba

Economic System #3: Market


-Predominant today

Necessities for Factory

1.) Technology

2.) Workers

3.) Urbanization

4.) Fuel

5.) Money for wages (monetization)

6.) Raw inputs

7.) Transportation

8.) Agricultural surplus

Transition from Serfs/Feudal --> Factory

1.) Enclosure movement: kicked people off common land, leading to agricultural surplus

-Common land did not maximize efficiency

Smith (3 Main Principles)

1.) Division and Specialization of Labor

2.) Invisible Hand

- Self interest also led to empathy

3.) Goal is everyone's consumption (better economy)--- his radical idea

Law of Population- Smith

Low wages --> infant mortality --> fewer workers --> wages increase --> kids survive --> more workers --> low wages, etc...

Smith- Capitalist effect on standard of living (long run)

Capitalist --> reinvest in business --> innovation --> rising standard of living

---bumpy increase

Nominal GDP

Price of things at time

Real GDP

Takes inflation into consideration


*influenced by darwin

1.) Dialectical Materialism (conflicts from opposite)

evolve and change through conflict

Labor Theory of Value

*both Smith and Marx believed in this

Value of product is equal to work put in

Marx: led to surplus value led to exploitation

Smith: led to price determination

Surplus Value

workers effort minus wages paid

price minus cost

Effect of Capital Accumulation

High prices --> capital accumulation --> decreased profits and substitutes capital for labor

Eventually substituting capital for labor leads to unemployment (decreased purchasing power), concentration of wealth in those that survive, and eventually immiseration and alienation of working class

Effects of Substituting capital for labor



How to increase surplus value


Increasing workers hours

Low wages

Make workers replaceable (so you can implement low wages, high hours)


Poor working conditions

Unions and Why did marx hate them

* marx didn't like them because they made capitalism look better (prevented revolt)

Unions --> collective bargaining + political power

-Can't replace all of them

-led to child labor laws and 40 hour work week

Competition imperfect

Marx and Smith believed this

Smith: Invisible Hand: self interest --> overall good (low prices)

Marx: competition --> conflicts (immiseration, alienation from concentration of wealth)

Capitalism productive, specialization

Marx and Smith both believed this

Smith: Rising standard of living

Marx: homogenization, proleterization (commodification of love, etc. will be brought into economy)

Determinants of Supply

1.) Expectations

2.) Number of producers

3.) related goods/services

4.) Technology

5.) Input prices

Determinant of Demand

1.) tastes

2.) number of consumers

3.) expectations

4.) price of related goods or services

-complement vs substitute

5.) income

-inferior vs normal

Total surplus

Consumer surplus + producer surplus

Price Ceiling inefficiencies

The shortage causes these

1.) Misallocation of buyers

2.) Poor Maintenance

3.) Wasted time/effort of people searching

4.) Reduced quantity of product below efficiency level

5.) Black Markets

Price Floor inefficiencies

Suplus causes these

1.) Misallocation of sellers

2.) wasted effort on finding buyers

3.) Inefficient low quantity (deadweight loss)

4.) inefficient high quality

5.) black market

Deadweight loss

If demand price exceeds supply price

Leads to temptation to break the law