Economics: Principal Agent Problems, Prisoner's Dilemma, Deadweight Loss, Regressive and Progressive Taxes, Ceteris Paribus, Economic Systems, Capitalism, Socialism, Communism, Chapter 1 and 2 Summaries - flashcards

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Budget Line

Shows combinations of products a consumer can purchase with a specific income

Economics

Social science concerned with optimal choices under scarcity

Communism

Stateless, classless economic system with worker ownership

Economic Principle

Statement proven by observation that predicts effects of actions

Division of Labor

Human specialization

Socialism

Public ownership and centralized decision making

Law of Increasing Opportunity Costs

As production of one good increases, opportunity cost of producing another unit rises

Ceteris Paribus

Assuming other conditions remain the same in a graph with more than 2 variables

Invisible Hand

Belief that society benefits when individuals compete for their own interests

Principal Agent Problems

Burger King requiring customers to get receipt to prevent employee theft

Mixed Economy

Combination of multiple economies

Entrepreneurial Ability

Combines resources to create a business and make decisions

Marginal Analysis

Comparing marginal benefits and costs

Traditional Economy

Continuing what ancestors are doing, like the Amish

Creative Destruction

Creation of new products destroys existing ones

Command Economy

Dictator or central planners make economic decisions

Production Possibilities Curve

Different combinations of goods and services that can be produced

Coordination Problem

Difficulty of coordinating millions of individuals in a command system

Microeconomics

Examines details of an economic unit

Macroeconomics

Examines economy as a whole

Economic Growth

Expanded potential output

Circular Flow Model

Flow of resources and money between households and businesses

Positive Economics

Focuses on cause-and-effect relationships

Opportunity Cost

Forgoing the next best thing to obtain more of one thing

Prisoner's Dilemma

Incentive to kill fish instead of conserving fishery

Normative Economics

Incorporates value judgements about how the economy should be

Incentive Problem

Lack of incentives in a command system

Factors of Production

Land, labor, capital, and entrepreneurial ability

Resource Categories

Land, labor, capital, and entrepreneurial ability

Scarcity

Limited goods and services

Economizing Problem

Making choices because wants exceed means

Optimal Output

Marginal benefits equal marginal costs

Economic Resources

Natural, human, and manufactured resources used in production

Deadweight Loss

No benefit to anyone

Economic System

Organizations and methods used to determine production of goods and services

Resource Market

Place where resources are bought and sold

Utility

Pleasure, happiness, or satisfaction from consuming a good or service

Marx

Predicted enterprises would allow greed to take over

Market Economy

Prices determined by supply and demand

Capitalism

Private ownership and decentralized decision making

Barter

Swapping goods

Regressive Taxes

Taxing rich and poor equally

Progressive Taxes

Taxing rich more than poor

Specialization

Using resources to produce one or a few goods


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