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Why do people trade?
it is mutually beneficial and are able to get things you don’t produce yourself
What does more access to trade mean?
It means more choices and a higher standard of living
What would life be like if cities couldn’t trade with cities or states couldn’t trade with states?
Limiting trade would reduce people’s choices and make people worse off
What is specialization?
country only making one thing they are good at one thing
What does Per Unit Cost equal to?
Opportunity cost/units gained
Assume it costs you $50 to produce 5 t-shirts. What is your PER UNIT cost for each shirt?
$10 per shirt
What is your PER UNIT OPPORTUNITY COST for each shirt in terms of hats given up? (Instead of producing 5 shirts you could have made 10 hats)
1 shirt costs 2 hats
What is your PER UNIT OPPORTUNITY COST for each hat in terms of shirts given up? (Instead of producing 5 shirts you could have made 10 hats)
1 hat costs half a shirt
Absolute Advantage
The producer that can produce the most output OR requires the least amount of inputs (resources)
EX: Papa John has an absolute advantage in pizzas because he can produce 100 and Ronald can only make 20.
Comparative Advantage
The producer with the lowest opportunity cost
EX: Ex: Ronald has a comparative advantage in burgers because he has a lowest PER UNIT opportunity cost.
How to do Output Questions
OOO (Output: Other goes Over)
How to do Input Questions
IOU (Input: Other goes Under)
What does Inside the Curve mean?
Inefficient/unemployment
What would happen if technology improves in pizza oven in a society where they produce pizza and computers
the production of computers would stay the same but the production of pizza would increase
what if there is new computer making technology in a society where they produce pizza and computers
Increase in production of computers but pizza stays the same
What if there is a decrease in the demand for pizza in a society where they produce pizza and computers
The Curve doesn’t shift! A change in demand doesn’t shift the curve
(If you see demand, it’s movement among the curve)
What if madcow kills 85% of the population of cows in a society where they produce pizza and computers
A shift inward only for Pizza
what if there was a Destruction of power plants in a society where they produce capital goods and consumer goods?
decrease in resources and decrease in production
What if there was faster computer hardware in a society where they produce capital and consumer goods?
Quality of a resource improves shifting the curve outward
what if many people were unemployed in a society where they produce capital and consumer goods?
The curve doesn’t shift! Unemployment is just a point inside the curve
What if there was an increase in education in a society where they produce capital and consumer goods?
The quality of labor is improved. Curve shifts outward
The Product Market
The “place” where goods and services produced by businesses are sold to households
The Resource (Factor) Market
The “place” where resources (land, labor, capital, and entrepreneurship) are sold to businesses
Private Sector
Part of the economy that is run by individuals and businesses
Public Sector
Part of the economy that is controlled by the government
Factor Payments
Payment for the factors of production, namely rent, wages, interest, and profit
Transfer Payments
When the government redistributes income (ex: welfare, social security)
Subsidies
Government payments to businesses
Do individuals supply or demand?
Both, they demand products and supply resources
Do business supply or demand?
Both, the supply products and demand resources
Who demands in the product market?
Individuals and the government
Who supplies in the product market?
Businesses