Economics Concepts - Lecture Notes Review (Flashcards)

30 flashcards covering key concepts from the lecture notes on production, efficiency, markets, and micro/macro economics.

What determines a country's standard of living according to Principle #8?

The ability to produce goods and services (productivity).

What are the main factors causing productivity differences across countries?

Level of technological advancement, education/skill levels of workers, and type of work involved.

How do modern, skilled workers affect production?

They increase the ability to produce material welfare.

What causes inflation?

An excess amount of money in circulation.

How is inflation defined in these notes?

An overall rise in price levels.

What happens to the value of a good as its quantity in existence increases?

It becomes less valuable (lower individual value).

What does the 'too many workers' metaphor illustrate?

Producing more of one output can limit how quickly tasks are completed; diminishing returns from overcrowding.

Historically, how did diamonds and sugar/spices compare to gold in value, and how is it different now?

They were more valuable than gold in the past; today their value is comparatively lower.

What is our ultimate goal in life according to the notes?

Maximizing utility (satisfaction/happiness).

What does diminishing marginal utility mean?

Each additional unit provides less extra satisfaction.

What are diminishing marginal returns in production?

Productivity increases with more labor up to a point, then increases diminish; successive amounts yield smaller gains.

What is the Production-Possibilities Frontier (PPF)?

A graph showing possible output combinations given current resources and technology; it shows trade-offs.

In the PPF example, what does the butter versus guns illustrate?

Producing more of one good requires sacrificing some of the other—there is a trade-off.

What do points on the PPF line represent?

Efficient or maximum production given resources and technology.

What do points inside the PPF represent?

Inefficient or underutilization; more of at least one good could be produced.

What do points outside the PPF represent?

Not feasible with current resources and technology.

What is the Circular-Flow Model about at a high level?

The interaction between households and businesses: households supply factors of production and buy goods/services; firms produce goods/services and hire factors while paying incomes.

In the circular-flow model, who are the major players and what do they exchange?

Households and firms; households supply factors of production and buy goods/services, firms supply goods/services and hire factors while paying incomes.

What do households supply in the circular-flow model?

Land, labor, and capital (the factors of production).

What do households buy in the circular-flow model?

Goods and services.

What do firms do in the circular-flow model?

They produce goods/services and hire factors of production; they buy factors from households and sell goods/services to households.

What is land as a factor of production?

A resource like space, e.g., space for farming or for 3D printers.

What is labor as a factor of production?

Human effort; the workforce; people offering to work for wages.

What is capital as a factor of production?

Any physical thing that helps produce goods/services (e.g., a computer).

How many markets are emphasized in the circular-flow model and what are they?

Two markets: the market for factors of production and the market for goods/services.

How does money flow in the circular-flow model?

Money circulates from households to firms for goods/services and from firms to households as income for factors of production.

Which branch studies individual economic behavior?

Microeconomics.

Which branch studies economy-wide phenomena?

Macroeconomics.

What is a positive statement?

Descriptive, backed by evidence/data.

What is a normative statement?

Subjective, about how things should be; cannot be proven.

What is the trade-off between efficiency and equity?

Efficiency aims to maximize output from scarce resources; equity aims for fair distribution; improving one can harm the other.

What are externalities?

Effects of one's actions on others; can be positive or negative.