ECON 1113: EXAM 1
67 Cards in this Set
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Murphy's Law
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What can go wrong will go wrong
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How does the government prevent going bankrupt?
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Pring more money (which will decrease the value of the dolar) and raise taxes
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Who decides your worth?
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Your employer
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Profit
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Revenue minus cost, Revenue - Cost (positive is good, negative is taking a "loss")
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Key Element 1
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Incentives matter
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Key Element 2
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There is no such thing as a free lunch
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Key Element 3
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Decisions are made at the margin
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Key Element 4
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Trade promotes economic progress
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Key Element 5
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Transaction costs are an obstactle to trade
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Key Element 6
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Prices bring the choices of buyers and sellers into balance
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Key Element 7
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Profits direct businesses toward activities that increase wealth
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Key Element 8
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People earn income by helping others
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Key Element 9
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Production of goods and services people value, not just jobs, provides the source of high living standards
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Key Element 10
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Economic progress comes primarily through trade, investment, better ways of doing things and sound economic institutions
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Key Element 11
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The invisible hand of market prices directs buyers and sellers toward activities that promote general welfare
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Key Element 12
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Too often the long-term consequences, or the secondary effects, of an action are ignored
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Economics is about
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how incentives affect the choices that shape our lives
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Decision making steps
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Compare costs versus benefits. If benefits exceed costs, do it. It costs exceed benefits, don't.
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What is affected by incentives?
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Political and market choices. Voters, politicians, consumers and producers.
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Incentives of price increases.
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Buyer purchases less, seller produces more
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Scarcity
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When our wants and needs are greater than our ability to fulfill them
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Resources are ___ while desire for goods is ___
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Limited, infinite
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Tragedy of the commons
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If a good is provided for free, there is no incentive to conserve it
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Marginal means
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additional
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Marginalism
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to get the most out of our resources, we should only take an action when the marginal benefits are greater than the marginal costs
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Trade
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Moves goods from people who value them less to people who value them more
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Trade makes larger outputs and higher consumption possible as the result of
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specialization
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Trade makes larger outputs possible because it facilitates the use of
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mass production methods !
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Transaction costs are
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Resources spent of searching out trade partners, searching out product information, negotiating terms of trade and closing sales
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Middle man
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Someone who provides a good or a service that is available to anyone
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Transaction costs caused by
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physical objects, lack of information, political objects
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How to reach company success
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Starts with an idea, make it happen, make money, then other companies start making the same thing... leading to competition that decreases price of that good
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Do producers have an incentive to produce efficiently and keep costs low?
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Yes - higher costs lead to lower profit
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Ceteris Paribus
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There is a direct link between helping others in ways that they value and the income we earn
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Income and living standards cannot increase without an increase in
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the availability of goods that people value
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Do spending programs create jobs of value?
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They might brag about it, but no.
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Sources of economic growth:
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Investments in productive assets, improvements in technology and improvements in economic organization
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To compare size of an economy
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Use Real GDP (it takes out inflation)
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To compare countries
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Use Per Capita Real GDP (theoretical piece of the pie that everyone gets)
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Nominal GDP
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includes inflation, if you have both the nominal and the real GDP, you can determine inflation
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Opportunity cost
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What you give up
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Scarcity
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When you have to give up something...
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What can cause a production possibilities curve to move inward?
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Less labor, capitol, entrepreneurship, etc
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What can cause a production possibilities curve to move outward?
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More labor, capitol, entrepreneurship, etc
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Good market system: property rights defined, established and protected by law
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We have the rights to our own labor
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Good market system: flexible prices
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Fluctuate in response to individual's voluntary decisions and exchanges (market exchange)
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Good market system: market incentives
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Generated by a price system whose rewards and penalties motivate decision makers
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Good market system: reasonably stable prices
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With a well-functioning monetary system that facilitates voluntary exchange
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Good market system: culture with a climate of trust
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In which a well-constructed and well-enforced legal system is broadly obeyed
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How is specialization is a way to tackle scarcity?
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It allows people to become highly skilled in a specific area
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Specialization conveniences..
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... reduces completion time, drives people to innovate and invent... causes dependence on others
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Absolute advantage
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An individual can produce a good at a lower cost than another individual or he can produce more
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Price System as Coordinator
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Demand schedule, quantity demanded, demand curve, law of demand
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Demand schedule
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Price versus quantity demanded. Numbers give you the demand curve... it's always downward sloping because of the law of deman
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What is the only thing that can move you up or down the demand curve?
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Price. ONLY.
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Law of demand states
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Price and quantity demanded have an inverse relationship (price decreases, quantity demanded increases, and vice versa)
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Change in non-price determinant of demand leads to
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A shift in demand
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Change in price of product leads to
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Change in quantity demanded and supplied
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Change in a non-price determinant of supply leads to
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A shift in supply
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Surplus
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Qs-Qd= positive number
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Shortage
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Qs-Qd= negative number
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When demand increases
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Price and quantity increase (direct), line moves to the right
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When supply decreases
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Price increases and quantity decreases (inverse), line moves to the left
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When demand decreases
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Price and quantity decrease (direct), lives moves to the left
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When supply increases
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Price decreases and quantity increases (inverse), line moves to the left
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Example of a capital resource
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A computer programmer
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Four factors of production
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Land, labor, capital, entrepreneurial ability
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ECON 1113: FINAL EXAM