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Economics
the study of scarcitythe study of choices or decision making TERM 2
Resources of Production (4)
DEFINITION 2 LandLaborCapitolEntrepreneurship TERM 3
Factor payments
DEFINITION 3 Land earns rentlabor earns wagescapitol earns interestentrepreneurship earns profit TERM 4
Adam Smith
DEFINITION 4 "The First Economist""Invisible Hand"Wrote "The Wealth of Nations" TERM 5
Scarcity
DEFINITION 5 Scarcity is the fundamental economic problem of having humans who have wants and needs in a world of limited resources.
Decision making
- choose decision to maximize gain2. choose decision to minimize loss TERM 7
SHORTAGE V. SCARCITY
DEFINITION 7 shortage-- temporary, sellers in marketplaceV.Scarcity- constant, can never be solved TERM 8
POVERTY
DEFINITION 8 avoidable, could be solvedgoverning body chooses not to address basic human needs TERM 9
Pure Market Economy
DEFINITION 9 Capitalism / Free enterprise- private property ownership- Democracy TERM 10
Pure Command/ Planned Economy
DEFINITION 10 one individual makes all the decisions in response to what to produce, how to produce, and for whom do these products go toCommunism, Socialism, Tyranny, Dictatorship
Positive Approach
examination and understanding of definitions, facts, theories, relationships and ability to apply concepts-black and white- objective"What is it?" TERM 17
Normative Approach
DEFINITION 17 opinions values judgementssubjective"What ought it to be?" TERM 18
Vertical line
DEFINITION 18 slope is infinity TERM 19
Horizontal line
DEFINITION 19 slope is 0 TERM 20
Negative Relationship between X and Y
DEFINITION 20 negative, decreasing, indirect, inverseline with downward slope to the right
Positive Relationship between X and Y
positive, increasing, direct TERM 22
Opportunity Cost
DEFINITION 22 Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative foregone. Measurement of what is given up TERM 23
PPC
DEFINITION 23 Production Possibilties Curve- max combination of g/s that can be produced in an economy in a given period of time TERM 24
2 underlying assumptions to achieve
maximum production
DEFINITION 24
- all available resources are being used2. highest level of technology available must also be used TERM 25
Linear
PPC
DEFINITION 25 constant tradeoff/ opportunity costeach product is the other's o/c1 acre would have to have same PPC as another 1 acre of land- make it almost impossible--NOT the real world
Changes in Resources
Resources increase = PPC increase (shift right)Resources decrease = PPC decrease (shift left) - natural disasters, man made disasters, human disease TERM 32
Change in Technology
DEFINITION 32 Technology increase = PPC increase (shift right) Technolgy decrease = PPC decrease (shift left) TERM 33
"Law of Increasing Cost"
DEFINITION 33 "once all factors of production are at maximum output and efficiency, producing more will cost more than average." TERM 34
"Law of Diminishing Returns"
DEFINITION 34 In economics, diminishing returns is the decrease in the marginal (per-unit) output of a production process as the amount of a single factor of production is increased, while the amounts of all other factors of production stay constant. TERM 35
2 types of Resources in Production
DEFINITION 35
- Fixed -- finite in quantity2. Variable -- LABOR
Trade in Production
PPC --> Specializing in production --> Trade --> Gains from Trade TERM 37
Absolute Advantage
DEFINITION 37 A trading party is said to have AA in the production of a product if it can produce the product a. in a larger amount using the SAME set of RESOURCES b. with less or fewer RESOURCES used TERM 38
Comparative Advantage
DEFINITION 38 A trading party is said to have CA in the production of a product if it can produce the product with lower OPPORTUNITY COST TERM 39
Fallacy of False Cause
DEFINITION 39 Post hoc ergo propter hoccause does not equal effect TERM 40
Fallacy of Cavalier Comparison
DEFINITION 40 you must compare things that have a common baseyou cannot compare apples to oranges
Determinants of Supply (4)
p(x) PRICE Number of Sellers Costs of Production Technology TERM 47
Equilibrium
DEFINITION 47 Equilibrium is the condition of a system in which competing influences are balanced. where the Demand intersects Supply TERM 48
Price changes
DEFINITION 48 point to point changes on a curve cause change in Quantity Demanded of Product TERM 49
Shift Parameters
DEFINITION 49 cause changes in DEMAND for a product TERM 50
"Law of Supply"
DEFINITION 50 The Law of Supply states that at higher prices, producers are willing to offer more products for sale than at lower prices,
market supply
horizontal summation of all individual sellers quantity supplied at each and every price TERM 52
Supply
DEFINITION 52 quantity that sellers are willing and able to produce at each and every price P --> Q(s) TERM 53
Surplus
DEFINITION 53 when quantity supplied is greater than quantity demanded- sellers react by lowering prices and lowering quantity supplied- buyers react to lowered prices by increasing Quantity demanded TERM 54
Shortage
DEFINITION 54 unwanted and unplanned event- sellers increase prices and increase Q(s)- buyers will react to higher prices by lowering Quantity Demanded TERM 55
Demand v Quantity
Demand
DEFINITION 55 Demand - entire relationship between prices and quantity of this product--- "The Demand Curve"Quantity Demanded- refers to one particular point on the demand curve --- How much of the product is demanded at each particular price
