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46 Cards in this Set
- Front
- Back
Positive or Descriptive Economics |
Limited or scarce resources force individuals and societies to choose among competing uses of resources-- alternative combinations of produced goods and services-- and among alternative final distributions of what is produced among households. |
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Capital |
Things that are produced and then used in the production of other goods and services |
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Factors of Production |
The inputs into the process of production. Also called resources. Land Labor and Capital |
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Production |
The process that transforms scarce resources into useful goods and services |
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Inputs or Resources |
Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants |
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Outputs |
Goods and services of value to households |
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Opportunity Cost |
The best alternative that we forgo when we make a choice or decision |
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Theory of Comparative Advantage |
Ricardo's theory That specialization and free trade will benefit all trading parties, even those that may be "absolutely" more efficient producer |
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Absolute Advantage |
A producer has an absolute advantage over another in the production of a good or service if he or she can produce that product using fewer resources |
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Comparative Advantage |
A producer has a comparative advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost |
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Consumer Goods |
Goods produced for present consumption |
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Investment |
The process of using resources to produce new capital |
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Production Possibilities Frontier |
A graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently |
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Output efficiency |
To be efficient, an economy must produce what people want. The economy must be operating at the right point on the PFF. |
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Production Efficiency |
The economy must be operating on the PPF. |
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Marginal Rate of Transformation |
The slope of the production possibility frontier. |
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Economic Growth |
An increase in the total output of an economy. It occurs when a society acquires new resources or when it learns to produce more using existing resources. |
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Economic Systems |
Command Economy Laissez-faire Economy |
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Command Economy |
An economy in which a central government either directly or indirectly sets output targets, incomes and prices |
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Laissez-faire Economy |
Literally from the French: "allow [them] to do." An economy in which individual people and firms pursue their own self-interest without any central direction or regulation. |
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Market |
The institution through which buyers and sellers interact and engage in exchange |
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Consumer Sovereignty |
The ideas that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase) |
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Free enterprise |
The freedom of individuals to start and operate private businesses in search of profits |
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Microeconomic Theory |
Price Theory |
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Three Basic Questions that must be answered to understand the functioning of the economic system |
What gets produced? How is it produced? Who gets what is produced? |
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Presumption |
Human wants are unlimited but resources are not |
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Positive or Descriptive Questions |
Scarce resources force individuals and societies to choose among COMPETING USES of resources (ALTERNATIVE COMBINATIONS of produced goods and services) and Among alternative FINAL DISTRIBUTION of what is produced among households. |
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most important resource |
human workforce |
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factors of production |
land labor capital
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GAINS |
SPECIALIZING AND TRADING SPECIALIZATION AND FREE TRADE DAVID RICARDO |
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INVESTMENT |
CREATION OF CAPITAL |
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PRODUCTION EFFICIENCY |
STATE IN WHICH A GIVEN MIX OF OUTPUT IS PRODUCED AT THE LEAST COST |
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POINTS ON THE PPF |
FULL RESOURCE EMPLOYMENT AND PRODUCTION EFFICIENCY |
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UNEMPLOYMENT |
POINTS INSIDE THE PPF |
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INNEFICIENCY |
WASTE AND MISMANAGEMENT |
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OUTUT EFFICIENCY |
produce what people want Points at the RIGHT point in the PPF |
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Scarcity |
Illustrated by the negative slope of the ppf |
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Marginal Rate of Transformation |
Slope of a society's ppf |
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Negative slope PPF |
indicates the trade-off that a society faces between two goods |
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PPF |
scarcity unemployment inefficiency opportunity cost law of increasing opportunity cost economic growth gains from trade |
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laissez-faire |
allow [them] to do central institution = market |
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Business rise and fall in response to consumer demand |
making a profit means selling goods or services for more than it costs to produce them you cannot make a profit unless someone wants the product you are selling |
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if a producer produces inefficiently, competitors will come along, fight for business, and eventually take it away |
competition forces producers to use efficient techniques of production. competition then dictates how output is produced |
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Income is the amount that a household earns each year |
Wealth is the amount that households have accumulated out of past income through saving or inheritance |
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all parties will gain |
if they specialize in producing goods in which they have a comparative advantage |
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Basic coordinating mechanism in a free market system |
price |