Chapter 1 Vocab and Consepts from power point

Efficiency

Maximum output of a good from the resources used in production. Efficiency means squeezing maximum output out of available resources. At every point of the PPC, we are getting as much total output as possible.

Scarsity

Lack of enough resources to satisfy all desired uses of those resources. Limited resources require choices and trade-offs to be made.

These 3 questions can be answered by...

The market mechanism, government devices and a mixture of both

law of increasing opportunity costs.

This law states that we must give up ever-increasing quantities of other goods and services in order to get more of a particular good. Go from two trucks and 0 tanks to one truck and .5 tanks.

Opportunity costs of converting to solar power:

To develop a nationwide, complete solar power infrastructure would cost trillions of dollars. Investing all the factors of production in solar development implies that solar development trumps all other social goals.

PPC (Production possiblilty curve)

describes the various output combinations that could be produced in a given time period with available resources and technology. shows the give and take in the truck and tank senario as well as the north korea one.

ex of production possibilites

the truck and tank senrio. Each point on the PPC depicts an alternative mix of outputs that can be produced.

production possibilities

The alternative combinations of final goods and services that could be produced in a given period with all available resources and technology.

Ceteris paribus

The assumption of nothing else changing. The assumption of ceteris paribus ("other things remaining equal") makes it easier to formulate economic theory and policy, but it also increases the risk of error. We assume that people buy less of a good when its price rises; however, in reality, it is possible that people may buy more of a good at increased prices. We typically ignore these possibilities by assuming that the price of the good in question is the only thing that changes. Thus, the concept of ceteris paribus allows us to make straightforward predictions in economics.

Ends vs. Means

The concept of ends and means is integral to your own life. For example, your goal (the ends) may be to be an economist. The question is how best to achieve that goal (the means). Economists don't formulate an economy's objectives. Instead they focus on the means available for achieving given goals.

Laissez faire

The doctrine of "leave it alone," of nonintervention by government in the market mechanism. The gov should play a small role in economical affairs.

opertunity cost

The most desired goods or services that are forgone in order to obtain something else. We chose resources to produce one thing, so we must give up using those resources to produce something else. It is associated with every decsion we make and everything has an opertunity cost. everytime we use scarse resouces in one way, we give up the oppurtunity tp use them in other ways. Oppurtunity cost is what is given up to something else.

Macroeconomics:

The study of aggregate economic behavior, of the economy as a whole. The "big picture." $$ as example. A primary concern of macroeconomics is to determine how much money, in total, consumers will spend on goods and services. Macroeconomics concerns itself with the level of total business investment.

Economics

The study of how best to allocate scarce resources among competing uses, essentially the study of how people use scarce resources. Alternative ways of using scarse labor, land, and capitabl recources are always avaliable, and we have to chose one over another.

Microeconomics

The study of individual behavior in the economy, of the components of the larger economy. What are the goals of the individuals, firms, and government agencies that compose the larger economy? $$ as an example.Microeconomics pays attention to purchases of specific goods and services rather than just aggregated totals. Another example is business investment. Microeconomics examines how individual businesses make their investment decisions.

What Economics Is All About

Understanding how economies function is the basic purpose of studying economics. We seek to know how an economy is organized, how it behaves, and how successfully it achieves its basic objectives. We then try to discover better ways of attaining those objectives.

Theory vs. Reality

We formulate theories, or models, of economic behavior and then use those theories to evaluate and design economic policy.

market mechanism has failed.

When market signals don't give the best possible answers to the WHAT, HOW, and FOR WHOM questions, we say that the market mechanism has failed. When the market fails, we end up with a suboptimal mix of output. Examples: too much unemployment or an inequitable distribution of income.

economy

an abstraction referring to the grand sum of all our production and consumption activities. (All the wealth for a region) What we produce and consume is what the economy produces and consumes

The market mechanism

(the invisable hand. made by adam smith)- The use of market prices and sales to signal desired outputs (or resource allocations). The market mechanism requires no contact between consumers and producers. Instead, communication is indirect, transmitted by market prices and signals.Adam Smith believed the price signals and responses of the marketplace were likely to do a better job of allocating resources than any government could.The essential feature of the market mechanism is the price signal. WHAT to produce? Produce goods and services that customers desire. HOW to produce? To maximize profits, seek the lowest-cost method of producing a good. FOR WHOM to produce? Produce for those who are both willing and able to pay for it.

the 4 factors of production

1. Land- All natural resources. 2. Labor- The skills and abilities to produce goods and services. 3. Capital- Final goods produced for use in the production of other goods, such as equipment and structures. 4. Entrepreneurship- The assembling of resources to produce new or improved products and technologies. It is not just about the resouces you have, but how well you use them. Using ideas to make more of what you have.

The production possibilities curve illustrates two essential principles:

1. Scarce resources- There's a limit to the amount of output we can produce in a given time period with available resources and technology. 2. Opportunity costs- We can obtain additional quantities of any particular good only by reducing the potential production of another good. it shows the limits of what all can be produced and shows that you can have more of 1 things or the other.

3 core economic questions

1. WHAT to produce?- The point we choose on the production possibilities curve determines what mix of output actually gets produced. 2.HOW to produce?- Someone has to make a decision about which production methods to use. 3. FOR WHOM to produce?- There must be a mechanism to determine whose wants and needs will be satisfied and who must go without.

LO1-3 Know what the production possibilities curve represents.

A production possibilities curve (P P C) illustrates the limits to production—the various combinations of goods and services that could be produced in a given period if all available resources and technology are used efficiently. The P P C also illustrates opportunity costs—what is given up to get more of something else. The bent shape of the P P C reflects the law of increasing opportunity costs: Increasing quantities of any good can be obtained only by sacrificing ever-increasing quantities of other goods. Inefficient or incomplete use of resources will fail to attain production possibilities, whereas additional resources or better technologies will expand them.

inefficientcy

A production possibilities curve shows potential output, not actual output. Inefficiency means that actual output will be less than that potential. An example of inefficiency would be not putting forth your best effort on a homework assignment. Whenever we are producing inside the PPC, we are forgoing the oppertunity pf producing (and consuming) additional output.

LO1-2 Know how scarcity creates opportunity costs.

All economic activity entails opportunity costs. Factors of production are scarce in relation to our desires for goods and services. When we choose to produce one thing, we forsake the opportunity to produce some other good or service.

a mixed economy

An economy that uses both market signals and government directives to allocate goods and resources. Most contries use a mix.

economic growth

An increase in output. an expansion of production possibilities. allows compaies to produce more bi increasing tech and resources. see paper for graph

LO1-4 Know the three core economic questions that every society must answer.

Every country must decide WHAT to produce, HOW to produce, and FOR WHOM to produce with its limited resources. The study of economics focuses on the broad question of resource allocation.

Positive analysis

Focuses on what is "best." Based on facts. For example, a positive analysis would observe that U.S. incomes are very "unequal," based on the fact that the richest 20 percent of the population get half of all income.

Normative analysis

Focuses on what ought to be done. Based on opinions and subjective judgments. To characterize that same distribution as "inequitable" or "unfair" would be a normative analysis.

gov failure

Government intervention that fails to improve economic outcomes. Government intervention might be needed to move us closer to our economic goals. If government can move us closer to the mix society desires, the intervention is successful. However, government intervention may fail as well. For example, the government may intervene to force an industry to clean up its pollution. However, the government's directives may impose such high costs that the industry ends up closing factories and laying off workers. economies need to find a balnce (of market signals and gov devices) so the gov will not fail.

government devices

Karl Marx and John Maynard Keynes advocated for government intervention, but to different degrees. Marx argued that the government not only had to intervene but had to own all the means of production—the factories, the machinery, the land—in order to avoid savage inequalities. (extreem) the gov should own everything. In Keynes's view, government should play an active but not all-inclusive role in managing the economy. (less extreem) said that the gov should watch over the economy to make sure everything is okay.

factors of production

Resource inputs used to produce goods and services. Without facors of production, we would not be able to produce anything.

LO1-1 Know what scarcity is.

Scarcity is a basic fact of economic life. Factors of production (land, labor, capital, entrepreneurship) are scarce in relation to our desires for goods and services.

LO1-5 Know how market and government approaches to economic problems differ.

The WHAT, HOW, and FOR WHOM choices can be made by the market mechanism, by government directives, or by a combination of these two choice mechanisms. Market failure exists when market signals generate suboptimal outcomes. Government failure occurs when government intervention worsens economic outcomes. The challenge for economic theory and policy is to find the mix of market signals and government directives that best fulfills our social and economic goals.