Studied by 4 peopleutility
happiness obtained from consuming a product
marginal
additional/extra
aggregate
combining different elements
positive economics
fact and cause-and-effect
normative economics
what we should do about the economy, what needs to be done
economizing problem
choices because want > need
four resource categories
land, labor, capitol, entrepreneurial ability
production possibilities model assumes
full employment, fixed resources, fixed technology, only produce 2 goods
future goods
capitol goods, like machinery
present goods
consumer goods, like pizza
limits to terms of trade
in between opportunity costs
laissez-faire capitalism
gov not involved
command systems
gov controls everything
market system
capitalism or mixed economy
characteristics of the market system (9)
private property, freedom of enterprise and choice, self interest, competition, markets and prices, technology and capitol goods, specialization, use of money, active but limited gov
private property (characteristics of the market system)
ensure only mutually agreeable economic transactions
protection of intellectual prop as well
freedom of enterprise (characteristics of the market system)
free to obtain and use economic resources to produce their goods and services and to sell them in the market
freedom of choice (characteristics of the market system)
enable owners to employ/dispose of property and money how they want
market (characteristics of the market system)
institution bringing together buyers and sellers
specialization (characteristics of the market system)
human and geographical specialization
use of money (characteristics of the market system)
money is medium of exchange
virtues of market system (3)
efficiency, incentives, freedom
demise of the command system (2)
coordination problem, incentive problem
types of business (3)
sole proprietorship, partnerships, corporation
law of demand
inverse relationship between price and quantity
law of diminishing marginal utility
as you buy more you gain less utility from each subsequent purchase
income effect
have more money, smaller percentage of income, buy more
substitution effect
buy a cheaper produce that can be substituted for a more expensive one
demand x and y axis
x axis - quantity
y axis - price
determinants of demand (5)
consumer taste, number of buyers, consumer income, price of related goods, consumer expectations
law of supply
as price goes up, quantity supplied also goes up
changes in supply (6)
resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, number of sellers
equilibrium price
quantity demanded = quantity supplied
productive efficiency
allocating resources in least costly way
allocative efficiency
using capitol that best fits the product
price ceiling
max price
price floor
minimum price
demand side market failures
impossible to charge consumers exactly what they are willing to pay
supply side market failures
a company doesn’t have to pay the full cost of producing their product (ex. pollution)
consumer surplus
difference between consumer max price and actual price
producer surplus
producer minimum acceptable price, what they are actually charging
deadweight loss
result from over/under production (efficiency losses)
public goods
non rivalrous
nonexcludability
private goods
rivalry
excludability
club goods
non rivalrous
excludability
common goods
rivalrous
nonexcludability
externality
cost/benefit seeps into a third party
negative externality
supply side market failures
cost goes to a third party
positive externalities
demand side market failures
benefits go to everyone, not just the people who pay for them
coase theorem
private negotiation is better than government intervention for a negative externality
principal-agent problem
principal is like the politician who wants to be re-elected, but the agent are the interests of societyspe
special interest effect
only want to help the larger groups, while ignoring the small groups
pork-barrel politics
only make projects for specific groups
rent-seeking behavior
like lobbying
clear benefits, hidden costs
do stuff that benefits short term because they’re trying to get reelected
fiscal policy
tax rates + gov spending
monetary policy
interest rates
positive externalities have 2 ______ curves
and are always on the ______
demand
left
negative externalities have 2 ______ curves
and are always on the ______
supply
right
Note
Flashcard