micro CRAM unit 1

scarcity

unlimited wants, limited demands

allocate

distribute

trade-off

the cost of every choice

marginal

one more added

utility

satisfaction

price

what the buyer pays

public sector

gov’t controlled firms

private sector

individual’s businesses

opportunity cost

next best thing given up to make a choice

cost

what the producer pays the good

consumer goods

finished goods (for sale)

capital goods

components to make goods

efficiency

no leftovers!

productivity

the measurement of efficiency

Investment***

when the producer pays money to buy tools and services to improve their business

four factors of production

land - raw materials (rent)

labor - the work (wage)

capital - makes a business more productive (interest)

• physical capital - stuff that helps (machines)

• human capital - education and training

entrepreneurship - the people arrange the first three to earn profit

self-interest

we chase our personal dreams, and it looks like profit

formula for profit

total revenue - total costs = total profit

drive for any business

keep costs low, profit high

big economic questions

1. what goods and services should be produced

2. how should the goods and services be produced

3. who should get the goods and services

free market system

money goes one way, goods and services go the other

• no gov’t intervention (indv. and people answer the questions)

command system

gov’t controls everything (answers all three questions)

mixed economy

blend of both (money goes one way, goods and services the other)

• gov’t regulates some services

Production Possibilities Curve (or frontier) PPC

shows the options an economy has to allocate its limited resources

constant oppurtunity cost

as you produce more of one good, the amount of other good you give up stays the same each time.

law of increasing opportunity cost

as you produce more of one good, you have to give up more of the other good

PPC assumptions

• only two goods produced

• full employment of resources

• factors of production is fixed

• tech is fixed

any point on the line is…

efficient

any point to the inside of the line…

is inefficient

any point outside the line is..

unsustainable or impossible

PPC shifters

• change in technology

• change in resources (quality and quantity)

• trade sort-of

specialization

giving up producing good X to produce more of good Y

opp cost per unit formula

opp cost// units gained

absolute advantage

raw data, the country who can produce the most items (OOO) or produce them with the least amount of resources (input - IOU)

input effcieny

using the least amount of resources (land, time, raw materials) to get the intended amount

• ex: getting an A on a test after studying 15 min

output efficiency

how much you produce using identical resources

• ex: you finishing three micro FRQS in 30 min and your friend only get 1 done

comparative advantage

the country that can produce the good at the lower opp cost (input and output)

terms of trade

countries’ agreement of exchange of goods which benefits both countries (a numerical range)

explicit costs

out of pocket actual money (paying rent or wages)

implicit costs

the costs of given-up opportunity (like lost income from not working)

marginal benefit

the benefit of one more ($)

marginal cost

the cost of one more ($)

law of diminishing marginal utility

more consume means less satisfaction

implicit costs + explicit costs = ??

total economic costs

equilibrium is when

MB=MC

marginal utility

how many utils of satisfaction gained by one more

utils

units of happiness satisfaction

utility maximization rule (aka getting the biggest bang for your buck)

MUx/Px = MUy/Py

marginal utility per dollar =

marginal utility//price

allocatively efficient

resources are used to make the products people want the most

• ppl want more food than blankets so a business will prod food, they are allocatively efficient

productively efficient

goods are made using the fewest resources possible (no waste)

• company can make 100 cars using all its resources, when it does that it is productively efficient