Econ intro
normative economics
"Should be". Expression of economists values or personal views based on quantifiable evidence. Speculative/Theory Ex. Government obligation to provide public transport to relieve neg enviro and health effects of traffic. Key word: THEREFORE
Robert L. heilbroner
"The worldly philosophies", economic revolution as solution to survival in a society arises from problems of scarcity. Modern problem of human unpredictability
positive economics
"What is" focuses on observations and expressions based on purely factual evidence (proven) EX. Law of demand, appreciation of countries currency, increase prices, effect of taxation
John Maynard Keynes
1930s argued active government should step in during slums. Uncertainty among economic agents would lead to major swings in the overall level of demand. The goal/purpose of government is to maintain an atmosphere of stability
How is scarcity a result of limited resources and endless wants?
3 apples for 5 people
Land
A factor of production which includes all natural resources: such as minerals, oil reserves, underground water, forests, rivers and lakes. Natural resources are also called 'gifts of nature' or 'natural capital'.
Labour
A factor of production, which includes the physical and mental effort that people contribute to the production of goods and services.
On
A nation achieving its PP is producing at its full employment level of output a point ____ the line or curve
Inside
A nation not achieving full employment is producing at a point _____ its PPC
invisible hand
A phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all
Market
A place where goods can be bought and sold and a price established.
Outside
A point _____ the PPC is unattainable because quantity and quality of resources is limited, but it is desirable
Efficiency
A state in which no one can be made better off without making someone else worse off. Output can't be achieved without increase in quantity and quality of inputs
Economy
A system for producing and distributing goods, and services to fulfill people's wants
Traditional Economy
An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.
economic growth
An increase in output of goods and services overtime. Illustrated as Outloud shift of the nations PPC. It's only possible with increase in quantity and quality of resources
How is Econ a social science?
Analyzes human interactions. Studies and explores the problems by human societies attempt to balance needs and desires with limited resources
Incentive
And economy that doesn't have viable ________ toward achieving efficient production will collapse eventually
factors of production
Another term for necessary scarce resources
Law of increasing opportunity cost
As the output of a product increases the opportunity cost of producing additional unit increases
Trade off
Axis represent _________ on a PPC diagram (hr playing video games vs hr working)
LLC (land, labor, capital)
Big three scarce resources/ factors of production
How and why do economist use the ceteris Paribus assumption when developing economic models?
By 'holding all things constant', the ceteris paribus assumption makes the analysis more manageable so the economists can focus on the effects of a specific hypothetical change.
What is the process of building models in economics?
Ceteris paribus. Economists use the ceteris paribus assumption to develop economic models.
Outside
Data points out side the line or curve on a PPC represent either a recession or economic growth
What does opportunity cost increase?
Drastically different choices. The use of different resources in different amounts of those resources/factors of production
market economy
Economic decisions are made by individuals or the open market. Free exchange
What is the distinction between economic growth and economic development?
Economic growth means an increase in real national income / national output. Economic development means an improvement in the quality of life and living standards, e.g. measures of literacy, life-expectancy and health care.
Socialism
Economic system implemented by Mel's China, stolen Soviet union and Castro Cuba. Goal is to move to an industrial and manufacturing econ from an agr econ. The mechanisms is total control of nations resources by gov
Birth of economics
Economics born in response to answer and deal with the complexity of economy from a scientific basis (modern/ post IR 18th cent)
Capital
Factor of production which includes the tools (money/workers/materials) and technology is used to produce the goods and services we desire
Equity
Fairness in the distribution of output in the nation
laissez-faire approach
Free trade theories - absolute advantage and comparative advantage. Govt hands off
Circular flow of a market economy
Households provide factors of production into resource market, intern resource market returns wages, and we just buy the products/services. It's an exchange of capital
To what extent may economic efficiency conflict with equality?
If only the top onepercent experience is growth sometimes it does not trickle down for the rest of society. Making a poor poor such as a flat tax
Market
In the flow in the market economy, money from the household moves first to the _____.
What threat to sustainability may rise as a result of current patterns of resource allocation?
Increased global climate change as a result of global economic growth, overfishing, deforestation, loss of biodiversity in exchange for expansion of agricultural and industrial output Issue of balance
Flow of market Econ
Input turns to output and income to revenue. Help you to help me to help you
Justification for economic growth
More is always better,
mixed economy
Most economies combined elements of free market with some degree of government intervention
Compare and contrast LLC
Need to be able to c/c LLC on test. -what is most important? -How are they connected? -L+L vs C etc
Data points
On a PPC diagram _____ _____ on the line or curve such as ABC or D represent maximum efficiency as all the factors of production are used
How are alternatives always foregone when an economic choice is made?
Opportunity cost
Arrow
Opportunity cost is represented in a PPC model By an _________
Productivity
Output attributable per unit of input. An increase in _________ of LLC equals increase in output of a nation
The assumption of rational self interest means:
People generally will make the best choices for themselves
What is the difference between positive and normative economics?
Positive describes the world as it is; normative makes statements about how the world should be.
Model
Represents an object or situation from the real world, but doesn't perfectly re-create the characteristics of an EXhot wheels versus real car paper airplane versus plane
Fallacy of command economy
Require state ownership of factors of production therefore there is no incentive to achieve maximum efficiency in use of resources and lacks eff allocation
Constant Opportunity Cost PPC
Resources are easily adaptable between two goods. Straight line PPC shows that the OC doesn't change. One or the other no other factors
Intensified
Scarcity is _________ when we use up more and more of the worlds resources in pursuit of our material desires
Scarcity
Scarcity is represented on the PPC diagram where the curve meets the axes. Shows that there is a limit. And where the curve starts it should finish to show scarcity
Why is scarcity the central problem of Econ?
Scarcity(problem)-> 3 Q (what, how and for who to produce) -> development of various Econ systems and methods of allocation (solution)
PPC demonstrates...
Scarcity~interaction of LLC. Trade-offs and choices, opportunity cost, unemployment, recession, economic growth, economic development, inflation and deflation
Adam Smith
Scottish moral philosopher and a pioneer of political economics. Seen today as the father of Capitalism. Wrote On the Wealth of Nations (1776) One of the key figures of the Scottish Enlightenment. Idea of Liberty/ freedom of choice
Critics of laissez-faire
See it perpetuates poverty, inequality across nations, involuntary unemployment and especially during slumps
sustainability
The ability to keep in existence or maintain. Endure
Scarcity
The basic economic problem that arises because people have unlimited wants but resources are limited.
Economics
The field of Study the concerns itself with the allocation of scarce resources between competing needs and wants of society
freedom of choice
The freedom of owners of property resources to employ or dispose of them as they see fit, of workers to enter any line of work for which they are qualified, and of consumers to spend their incomes in a manner that they think is appropriate.
Opportunity cost
The opportunity lost when making a decision of how to use our scarce resources, whether it's time money or LLC (The next best alternative to the choice you made)
Productivity
The output attributable to each unit of input
Tradeoff
The various opportunities you could choose to pursue in any given situation
Law of increasing opportunity cost
This law is represented on a PPC diagram by a curve
Why do choices have to be made as a result of scarcity?
Three apples for five people
Goal of Econ
To expand the frontiers of human experience, improve efficiency of the use and allocation of the world scarce resources
opportunity cost
What has to be given up in order to undertake any activity or Econ exchange
Human ingenuity
What isn't scarce?
Cost
What must be given up in order to have something else. Choices always have______ because resources are scarce
Big 3 Qs of Econ
What to produce? How to produce? And for whom to produce?
Recession
When the level of output has fallen below the full employment level achieved when producing on it's PPC
who
________ (gov, dictator) answers the three economic questions determines the nature of the economic system
Ceteris Paribus
a Latin phrase that means "all other things held constant" The condition that allows a econ to examine the relationship between just two variables. Because Econ is always real world and takes in view human nature it needs an assumption. However is important to remember CP can be a little unrealistic
command economy
a central authority makes the major decisions about WHAT, HOW, and FOR WHOM to produce Equality/eff, society/individual
PPF (Production Possibilities Frontier)
a curve that shows the maximum quantity of one good that can be produced for each possible quantity of another good produced
social science
a field that studies people and the relationships among them
Firm
an organization that uses resources to produce a product, which it then sells
stake holders
any groups that have a stake - or a personal interest - in the performance and actions of an organization
4 goals of macroeconomics
economic growth low unemployment low inflation sustainable trade deficits
Allocation
the distribution of resources, goods, or services.