ECON 2133: Exam 1
30 Cards in this Set
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Economics
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Art or Science of making decisions
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Scarcity
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the limited nature of society's resources
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Efficiency
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when society gets the most from its scarce resources
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Equality
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when prosperity is distributed uniformly among society's members
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opportunity cost
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whatever must be given up to obtain it
it is the relevant cost for decision making*cost is not just the monetary value!
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Rational People
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systematically and purposefully do the best they can to achieve their objectives.
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Marginal changes
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incremental adjustments to an existing plan
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Incentive
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Something that induces a person to act, i.e. the prospect of a reward or punishment.
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Market
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a group of buyers and sellers (need not be in a single location)
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Market Economy
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allocates resources through the decentralized decisions of many households and firms as they interact in the markets.
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Market Failure
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when the market fails to allocate society's resources efficiently
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Externalities
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when the production of consumption of a good affects bystanders (e.g. pollution)
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Market Power
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a single buyer or seller has substantial influence on market price (e.g. monopoly)
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Productivity
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the amount of goods and services produced per unit of labor
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The most important determinant of living standards: ________
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productivity
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Inflation
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increases in the general level or prices
in the long run,inflation is almost always caused by excessive growth in the quantity of money, which causes the value of money to fall.
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In the short run (1-2 years)
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many economic policies push inflation and unemployment in opposite directions
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Microeconomics
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is the study of how households and firms make decisions and how they interact in markets
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Macroeconomics
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is the study of economy-wide phenomena, including inflation, unemployment, and economic growth.
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Economist play two roles
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1. scientists
2. policy advisors
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Scientific Method
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the development and testing of theories about how the world works.
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Positive statements
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attempt to describe the world as it is
positive statements can be confirmed or refuted, normative statements cannot
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normative statements
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attempt to prescribe how the world should be
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Model
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a highly simplified representation of a more complicated reality.
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Circular-flow diagram
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a visual model of the economy, shows how dollars flow through markets among households and firms
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Two markets
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-the market for goods and services
-the market for "factors of production"
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Factors of Production
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the resources the economy uses to produce goods and services including: labor, land and capital
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Firms
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buy/hire factors of production, use them to produce goods and services
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Households
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own factors of production, sell/rent them to firms for income
Buy and consume goods and services
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Production Possibilities Frontier (PPF)
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a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology
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ECON 2133: CHAPTER 10