ECON 202

Normative economies

the study of what economies should be. What should income distribution be? What should tax policy achieve?

Positive economies

study of what is and how the economy works

Sunk costs

costs that have already happened and cannot be recovered

Marginal costs

additional costs over ones that have already happened

Marginal benefit

additional benefit over one that has already happened

Opportunity cost

benefit that may have been gained from choosing the next-best alternative

MB > MC

benefit outweighs cost

MC > MB

cost outweighs the benefit

MB = MC

peak efficiency

Points on a PPC

do not represent efficiency. They represent different outputs

Liability of sole-proprietorship

is unlimited

Liability of parternship

is unlimited

Liability of corporations

is limited

Governments in a market economy

referee between households and businesses, redistribute income, and purchase goods and services

L3Cs

take social objectives and profit into consideration

When there are market externalities, the market allocation of resources will be optimal.

False

Market Economy

economy based on private property and individuals decide how, what for, and to whom goods are produced

Trade sanctions on a certain market will

shift graphically left, equilibrium price will rise

Scarcity exists because…

human desires have always exceeded human willingness to meet those desires

Opportunity cost is…

what must be given up on a PPC

Constant opportunity costs are…

always represented by a straight-line PPC

To find opportunity cost

Subtract Y from X

factor market

interaction between households and businesses, households demand businesses need employees

goods market

businesses provide goods and services to households and government

Government is on the…

demand side of the factor and goods market

Stocks and bonds are both…

financial assets