Economic Perspective and Production Possibilities Model - Flashcards

Flashcards covering key concepts from the notes on the economic perspective, theories/principles/models, and the Production Possibilities Model.

What are the three key features of the economic perspective?

Scarcity and choice; purposeful behavior; and marginal analysis.

What does scarcity and choice mean in economics?

The fundamental problem: unlimited wants, limited resources, which forces choices.

What does the phrase 'there is no free lunch' illustrate in economics?

Even free goods use scarce resources that could be used for something else.

What is opportunity cost?

The value of the next-best alternative you give up when making a choice.

Provide an example of opportunity cost.

Choosing to study for an exam means giving up watching a movie.

What is purposeful behavior in economics?

Rational self-interest: decisions aimed at increasing personal satisfaction.

What is marginal analysis?

Comparing marginal benefit to marginal cost; a rational choice is MB ≥ MC.

What does ceteris paribus mean?

All other things equal; holding other factors constant in analysis.

What is the fallacy of composition?

What is true for an individual is assumed true for the entire group.

What is microeconomics?

The study of individual economic units (a consumer, household, or firm).

What is macroeconomics?

The study of the economy as a whole, including growth, inflation, unemployment.

What are the assumptions of the Production Possibilities Model?

Full Employment; Fixed Resources; Fixed Technology; Two Goods.

What is the Production Possibilities Curve?

A curve showing the maximum combinations of two goods that can be produced given resources and technology.

What do points on the PPF curve represent?

Efficient, fully employed production.

What do points inside the PPF curve represent?

Inefficient economy with unemployment.

What do points outside the PPF curve represent?

Currently impossible to achieve with available resources and technology.

What is the Law of Increasing Opportunity Costs?

The curve is bowed outward; producing more of one good raises the opportunity cost of the next unit.

What is economic growth in the PPF context?

An outward shift of the PPF due to more resources or better technology.

What are the factors of production (inputs)?

Land, Labor, Capital, Entrepreneurial Ability.

What does capital refer to in economics?

Manufactured aids to production (tools, machinery, buildings); money is not capital.

What is entrepreneurial ability?

A human resource that takes initiative, makes strategic decisions, innovates, and bears risk.

What does the Production Possibilities Model assume about the two goods produced?

The economy produces two goods, typically one consumer good and one capital good.

What are the three key features of the economic perspective?

Scarcity and choice; purposeful behavior; and marginal analysis.

What does scarcity and choice mean in economics?

The fundamental problem: unlimited wants, limited resources, which forces choices.

What does the phrase 'there is no free lunch' illustrate in economics?

Even free goods use scarce resources that could be used for something else.

What is opportunity cost?

The value of the next-best alternative you give up when making a choice.

Provide an example of opportunity cost.

Choosing to study for an exam means giving up watching a movie.

What is purposeful behavior in economics?

Rational self-interest: decisions aimed at increasing personal satisfaction.

What is marginal analysis?

Comparing marginal benefit to marginal cost; a rational choice is MB

What does ceteris paribus mean?

All other things equal; holding other factors constant in analysis.

What is the fallacy of composition?

What is true for an individual is assumed true for the entire group.

What is microeconomics?

The study of individual economic units (a consumer, household, or firm).

What is macroeconomics?

The study of the economy as a whole, including growth, inflation, unemployment.

What are the assumptions of the Production Possibilities Model?

Full Employment; Fixed Resources; Fixed Technology; Two Goods.

What is the Production Possibilities Curve?

A curve showing the maximum combinations of two goods that can be produced given resources and technology.

What do points on the PPF curve represent?

Efficient, fully employed production.

What do points inside the PPF curve represent?

Inefficient economy with unemployment.

What do points outside the PPF curve represent?

Currently impossible to achieve with available resources and technology.

What is the Law of Increasing Opportunity Costs?

The curve is bowed outward; producing more of one good raises the opportunity cost of the next unit.

What is economic growth in the PPF context?

An outward shift of the PPF due to more resources or better technology.

What are the factors of production (inputs)?

Land, Labor, Capital, Entrepreneurial Ability.

What does capital refer to in economics?

Manufactured aids to production (tools, machinery, buildings); money is not capital.

What is entrepreneurial ability?

A human resource that takes initiative, makes strategic decisions, innovates, and bears risk.

What does the Production Possibilities Model assume about the two goods produced?

The economy produces two goods, typically one consumer good and one capital good.

What is the basic economic problem?

The fundamental problem is that society has unlimited wants but limited resources.

What is the difference between positive and normative economics?

Positive economics describes facts and cause-and-effect relationships, while normative economics involves value judgments about what the economy should be.

What income do the four factors of production earn?

Land earns rent, Labor earns wages, Capital earns interest, and Entrepreneurial ability earns profit.