Econ Chapter 1 Test

The economic problem

Economists deal with problem that presume:

* Economic agents must continually make choices.
* Their wants are unlimited.
* They face a limited supply of economic resources.

scarcity

Having unlimited wants but limited resources with which to satisfy them.

Positive economics

The study of economic facts and why the economy operates as it does. Deals with facts and direct observation of the world

Descriptive statements

* positive economics
* Portray the world as it is or has been in the past.
* Portrays facts that can be verified statistically. 
* Ex. X is Y, or X was Y.

conditional statements

* Forecasts based on the analysis of economic behaviour.
* Ex. If X, then Y.

normative economics

The branch of economics that primarily concerns statements that contain value judgements. Express what economists think should be the case, based on their value judgements. These statements cannot be confirmed or refuted solely by reference to facts.

value judgement statements

* normative economics
* Statements that express what an economist thinks should be the case.
* Goals and policy statements that express an opinion and are up for debate. 
* Ex. any statement that's opinion based, but also has some facts to back it up. 

micro economics

the branch of economics that focuses on the behaviour of individual participants in various markets. Example: how a local business decides to allocate their funds

macro economics

the branch of economics that takes a wide-ranging view of the economy through four sectors: households, businesses, government and foreign. Example: inflation, national income, GDP

indirect relationship

when 2 variables in a relationship move in the opposite direction

direct relationship

when two variables in a relationship move in the same direction

production possibilities curve (ppc)

* Highlights the scarcity of resources 
* Has a concave shape, which reflects the law of increasing opportunity costs 
* Points within can be produced but it would be inefficient 
* Maximum efficiency is the curve 
* Points outside are unattainable

opportunity cost

Defined as the utility of the best alternative or the cost of the next best option/alternative.

traditional system

an economic system in which production and decisions are determined by the practices of the past

**Adv:** minimal change, group decisions 

**Dis:** a little opportunity for social development,  little long-term planning

advantages of a traditional systems

minimal change, group decisions

disadvantages of a traditional systems

a little opportunity for social development,  little long-term planning

market system

based on public ownership and the use of markets in economic decision-making. Consumer-centred and innovative but crease inequality and instability

**Adv:** maximum freedom of choice, variety of goods/services

**Dis:** manipulation of wants through advertising, income is unevenly distributed

advantages of market systems

maximum freedom of choice, variety of goods/services

disadvantages of market systems

manipulation of wants through advertising, income is unevenly distributed

command system

an economic system in which production decisions are made by government-appointed central planners

**Adv:** planning for growth, planning reduces waste

**Dis:** limits individual choice and initiative, limited availability of goods

advantages of command systems

planning for growth, planning reduces waste

disadvantages of command systems

limits individual choice and initiative, limited availability of goods

mixed system

include both private and public sectors

**Adv:** free enterprise, government regulations for businesses

**Dis:** limits individual choice and initiative, limited availability of goods

advantages of mixed systems

free enterprise, government regulations for businesses

disadvantages of mixed systems

limits individual choice and initiative, limited availability of goods

economic goals

1. economic efficiency 2. full employment 3. price stability

economic efficiency

economists recommend that all decision-making processes in the economy be rational and efficient.

full employment

all individuals that are able and willing to work should be able to find jobs. If the unemployment rate is increasing that would lead to a serious economic issue, therefore people want the economic system to provide enough jobs for a country.

price stability

policymakers work to try to have stable economic figures and maintain the level of prices in order to have an efficient economic system. If prices increase too much, people will need more to cover their daily expenses and those on fixed incomes will start to struggle financially. 

basic questions economists must ask

1. What to produce
2. How to produce
3. For whom to produce