Create
Learn
Share

ECON 1000 Exam 1

rename
gasucaxa's version from 2017-01-30 00:27

Section

Question Answer
economics – the social science that studies how people make decisions in the face of scarcity and the resulting impact of such decisions on both society as a whole and the individual members therein.
scarcity – a universal phenomenon that arises because resources are limited.
tradeoffs – the recognition that in many situations acquiring more of one thing can often only be done at the expense of getting by with less of something else.
microeconomics – the study of how individual decision maker behave and interact with each other, often with a focus on how households and firms behave and interact with each other in markets.
macroeconomics – the study of the functioning and performance of a society’s economy as a whole, often with a focus on levels of and changes in aggregate measures such as the inflation rate, unemployment rate, and gross domestic product growth rate
positive statement – a statement that aims to describe how the world actually is or actually functions.
normative statement – a statement that aims to assess the desirability of how the world is or functions, perhaps with suggestions of things that could be done to improve matters.
rational decision maker – someone with a well-defined goal, who takes actions to achieve the goal as best as possible.
total benefits – the gains that a person realizes from taking an action.
total costs – the burdens that a person incurs from taking an action.
total economic surplus – the difference between total benefits and total costs.
Cost-Benefit Principle – a guide to decision-making which states that an individual should undertake an activity if and only if the additional benefit of doing so is greater than or equal to the additional cost of doing so.
marginal benefit – the change in the value of total benefits as more of an activity is undertaken.
marginal cost – the change in the value of total costs as more of an activity is undertaken.
Incentive Principle – a summary of how behavior of a rational decision maker will change as costs or benefits change: (i) if the marginal benefit of an activity increases, then a rational person will engage in more of the activity, whereas (ii) if the marginal cost of an activity increases, then a rational person will engage in less of the activity.
self-interested individual – someone who makes his own personal assessment of the benefits and costs associated with different outcomes, and who subsequently uses these measures as the basis for decision making.
goods and services – outputs of the production process, such as food, clothing, shelter, healthcare, education, and entertainment
factors of production – inputs in the production process, broadly categorized as land, labor, and capital
production – the process by which inputs (i.e., factors of production) are transformed into an output (i.e., a good or service)
households – the decision making entities whose primary objective is to obtain benefits from consuming goods and services
firms – the decision making entities whose primary role is to produce goods and services for consumption by households
Three Fundamental Economic Questions – when it comes to deciding how to use scarce productive resources, every society must address three fundamental economic questions: (i) What to produce? (production decision), (ii) How to produce it? (resource use decision), and (iii) For whom to produce it? (distributional decision)production decision. Of all the different combinations of goods and services that we could produce, what specific combination will we produce?
resource use decision – which productive resources will be used to produce which goods and services?
distributional decision – who gets to consume the goods and services that we have chosen to produce?
production possibilities frontier – a curve that summarizes the limits of production that a society faces by illustrating the maximum amount of one good that can be produced for every possible level of production of another good.
attainable output combination – a combination of goods that can possibly be produced by a society with its available productive resources and technology (such combinations are on or below the PPF).
unattainable output combination – a combination of goods that cannot possibly be produced by a society with its available productive resources and technology (such combinations are beyond the PPF).
productive efficiency – a situation in which it is NOT possible to increase the amount produced of any good, without decreasing the amount produced of some other good (in such cases the society will be producing a combination of outputs on its PPF)
productive inefficiency – a situation in which it is possible to increase the amount produced of some good, without decreasing the amount produced of any other good (in such cases the society will be producing a combination of outputs below its PPF).
absolute advantage – a producer has an absolute advantage in the production of a good if she can produce more output than another producer using the same amount of inputs.
opportunity cost – a general concept that refers to the cost of giving up the best alternative that must be foregone in order to do or acquire something; it measures the value of the next best use of the resources used to undertake (and provides the truest measure of the cost of engaging in) the activity being considered.
comparative advantage – a producer has a comparative advantage in the production of a good if her opportunity cost of producing the good is lower than the opportunity cost of another worker for producing the same good.
Law of Comparative Advantage – a guide for allocating scarce productive resources to various tasks, which states that when increasing the production of a good, a society should do so by using the available productive resource with the lowest opportunity cost (applying this rule allows a society to achieve productive efficiency).
economic system – the rules and methods put in place by a society to answer the three fundamental economic questions of “What to produce?,” “How to produce it?,” and “For whom to produce it?”.
comparative economic systems – the subfield of economics that compares and contrasts the structure and the performance of different types of economic organization (i.e., different economic systems).
four primary economic institutions – households, firms, markets, and government
households – the most fundamental part of any economic system; ultimate consumers of most finished goods/services; primary suppliers of labor
firms – the institutions which transform factors of production into finished goods/services
economic resources or factors of production – the inputs such as factories, farms, stores, trucks, and equipment used to produce goods and services.
natural assets – natural resources, including minerals, naturally occurring vegetation, water resources, topographical features, and available agriculturally productive land
produced assets – the currently available machines, factories, and inventories of finished goods available as industrial capital, as well as social capital such as transportation and communications infrastructure, and educational institutions
human capital – the skills, education, and training which individuals in the labor force possess
market – the collection of all potential buyers and all potential sellers of a good or service.
government – a decision-making institution with the legal authority to impose restrictions or mandates on the behavior of other decision-makers (i.e., the ability to use legal coercion).
contract – a legal document which specifies what different parties must do, whatever the external circumstances, and provides enforcement or compensation for nonperformance
capitalism – economic system in which the means of production are privately owned and operated for a profit.
socialism – economic system in which the means of production are owned by the government.
feudalism – economic system in which land ownership is restricted to an aristocratic nobility.
three dimensions of Private Ownership of Property – (i) “right to control,” (ii) “right to transfer,” and (iii) “right to restitution.”
right to control – the right to decide how to use your property.
right to transfer – the right to obtain ownership of property from or relinquish ownership of property to another person.
right to restitution – the right to be compensated by another person when he damages your property or infringe upon your rights.
consumer sovereignty – the freedom for an individual to choose to purchase (or to not purchase) a good or services at a price determined in a free, unfettered market
Adam Smith – 18th century (1721-1790) Scottish economist, who wrote “An Inquiry into the Nature and Causes of the Wealth of Nations,” in which he laid out the central arguments for why private ownership/control of resources and trade in free markets often result in desirable outcomes
Invisible Hand – Smith’s recognition that under certain conditions, the behavior of self-interested decision makers interacting in free markets leads to outcomes which are better for all parties. When the “invisible hand” is applicable, any possible alternative to the market outcome would be less desirable for some individuals in society. “free market forces” are the “invisible hand” that leads us to an outcome that is “efficient” (in that “total social surplus” is maximized).
Karl Marx – 19th century (1818-1883) German philosopher, economist, and revolutionary, who wrote “Das Kapital” (1867, 1884, 1885) and co-wrote (with Friedrich Engels) “The Communist Manifesto” (1848)
Bourgeuoisie – the term which Karl Marx used to refer to business owners.
Proletariat – the term which Karl Marx used to refer to the working class.
Communism – economic system in which the means of production are collectively owned by all people in a society (without intervention by a government or state). A stateless, classless economic system in which all the factors of production are owned by the workers and people share in production according to their needs: “From each according to his ability, to each according to his need” (Louis Blanc in “The Organization of Work,” 1839)
New Soviet Man – a person motivated primarily by selfless benevolence.
Economic Man (or homo economicus) – a person who is both self-interested and rational (this is the standard assumption within mainstream economics)
command planning – an environment in which the government directly controls nearly all economic activity, and almost all production takes place within enterprises owned/controlled by the government.
indicative planning – an environment in which the government guides the behavior of individuals in regards to economic decisions by establishing policies which alter costs and benefits.
three primary types of economic incentives – material rewards, moral suasion, and coercion.
material rewards – monetary rewards or direct increases in consumption from engaging in an activity.
moral suasion – attempts to convince individuals to behave in a certain manner because doing so is the right thing to do.
coercion – the use or threat of force or incarceration in order to obtain compliance.
memorize