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
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
