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What does utility mean in economics?
Refers to satisfaction, pleasure, or benefit that a person derives from consuming a good
What is economics defined as?
Study of how people, businesses, governments, and societies make choices about allocating limited resources
Why do opportunity costs exist?
Resources are limited; this is the alternative
A recurring theme in economics is that people have what?
People have unlimited wants, but limited resources
What are economic theories?
Explanations or models that help us understand and predict how the economy works
Another way of saying “ceteris paribus” is?
All other things being equal
Macroeconomics approaches the study of economics from the viewpoint of?
The economy as a whole
Microeconomics is concerned with?
Behavior and decision making of individual economic agents (consumers, firms, and households)
What is positive and normative statement?
Positive is fact-based, normative is value-based
What is a budget line?
The combination of two goods or services that a consumer can purchase given their income and the prices
Any combination of goods lying outside the budget line are?
Unaffordable for the consumer
What will shift the budget line to the right?
Consumers income increases or if the prices of goods decreases
What does specializing and engaging in international trade do to the budget production possibility curve?
Allowing the country to consume beyond its own production capabilities
What are the four factors of production?
Land, labor, capital, and entrepreneurship
Why is money not an economic resource?
It is not directly used in the production of goods and services
What does the production possibilities curve illustrate?
Maximum combination of two goods that the economy can produce given its resources
What does the law of increasing opportunity cost state?
As you produce more of one good, the opportunity cost of producing additional units increase
Where is equilibrium?
Demand and supply curve intersect
What is marginal benefit/ marginal costs?
Benefit, is the benefit from consuming a good. Cost, is the additional cost from producing a good
What are normative and positive statement?
Positive is fact based. Normative is value-based
Any combination of goods lying outside of the budget line is unattainable with the consumer’s current income?
Budget Line
Where will an economy experience unemployment in relationship to the production possibility curve?
Inside the possibility curve
What is the main function on an entrepreneur?
Organize and manage the factors of production
What does the term “laissez-faire” suggest or mean?
Let it be
What is a fundamental difference between the command system and laissez-faire capitalism?
Command system, the government controls laissez-faire, the market controls
What does competitive involve?
Increasing sales, improving product quality, lowering prices
Why is specialization in production important?
Leads to several key benefits that increase efficiency and productivity
How does the use of money contribute to economic efficiency?
Helps drive overall economic productivity, innovation, and growth
The five fundamental questions?
What to produce, how to produce, for whom to produce, when to produce, and where to produce
What does consumer sovereignty refer to?
Consumers have the power and control over the market because they determine what goods are produced
What are the basic markets in the circular flow model?
Primary exchanges of goods, services, and money between different economic agents
What does the term “dollar votes” mean in a market system?
Consumers “vote” with their money to express their preferences on goods
What is creative destruction?
Cycle of innovation where new products replace older ones
What is a market?
Buyers and sellers come together to exchange goods
What does the law of demand state?
As price increases, demand decreases
What is diminishing marginal utility?
The more you consume something, the less satisfaction with the purchase
What does the law of supply state?
As the price increases, the demand increases
What will increase supply and demand?
Supply- technology advances, more resources, lower input costs. Demand- higher consumer income, population growth
What is productive and allocative efficiency?
Productive- produced at lowest possible cost. Allocative-produced based on societal welfare
What are market failures?
Fails to allocate resources efficiently
What is consumer/producer surplus?
Consumer- what they are willing to pay and what they pay for it (maximum). Producer- what they are paid for and the minimum price they will accept.
What is asymmetric information?
One party has better info than the other party
What is the moral hazard problem?
One party takes on more risk
What are positive/negative externalities?
Positive-results in benefits for third parties wjo are not directly involved. Negative- imposes costs who are not involved
What is supply/demand side market failure?
Demand, quantity is either too low or too high. Suppy, fails to provide goods in the right quantity.
What are the characteristics of public and private goods?
Public- non-excludability, and non-rivalry. Private- excludability and rivalry
What is the free-rider problem as it relates to public goods?
people benefit from a good without having to pay for it
When are government failures?
When government intervention leads to inefficient allocation of resources
What is regulatory capture?
Act in the publics interest, influenced or controlled by the firms
What is political corruption?
Abuse of power by government officials for personal gain
What is political logrolling?
Politicians agree to support each others proposed legislation or policies
What does the term “medium voter” mean as it relates to voters?
The voters whose preference lie in the exact middle of the political spectrum
What is a potential solution to some regulatory capture?
Increasing transparency, strengthening the independence, festering public participation
What are the two topics of primary concern in macroeconomics?
Economic growth and unemployment
What does real GPD measure?
Total value of all goods produced within a countries borders, adjusted for inflation
What does nominal GPD measure?
Total value of all goods and services at current market prices
What are the three statistics that are the main focus for measuring macroeconomic health?
GPD, unemployment, and inflation
Unemployment describes?
Individuals actively seeking work, unable to find a job
Inflation is defined as?
The general level of prices for goods and services rises overtime
What are economists referring to when they are describing “investment”
Expenditure on capital goods, that are used to produce other goods in the future
What does the term “recession” describe?
A period of declining economic activity
Why are economists concerned about inflation?
Erode purchasing power, create economic uncertainty, distort decision making
