Untitled Flashcards Set

What is opportunity cost?

The value of the next best alternative that is foregone when making a decision.

What encourages investment and innovation?

Property rights.

What is opportunity cost?

The value of the next best alternative that is foregone when making a decision.

What encourages investment and innovation?

Property rights.

What ensures contracts are enforced and reduces uncertainty?

Rule of law.

What is the effect of trade on economic surplus?

Trade reallocates goods to those who value them more, enhancing total surplus via comparative advantage.

Why might rapists be incentivized to kill their victims?

If both rape and murder carry the death penalty, rapists may kill to avoid witnesses.

What is specialization based on?

Comparative advantage (lower opportunity cost).

What is the impact of tax hikes on consumption?

Tax hikes reduce consumption of taxed goods.

What happens in trade as a value creator?

By transferring goods to higher-value users, both parties gain surplus.

How should decisions be made according to marginal analysis?

By evaluating marginal benefit vs. marginal cost.

What is the total opportunity cost of attending college?

Tuition plus forgone earnings from not working full-time.

What are some supply curve shifters?

Input prices, technology, number of sellers, taxes/subsidies, expectations.

What occurs when there is a decrease in demand?

A leftward shift in the demand curve.

What is consumer surplus?

The difference between willingness to pay and market price.

What are complements in economics?

Goods that are used together, e.g. peanut butter and jelly.

What does the loanable funds market consist of?

Supply from savers and demand from borrowers.

How does diversification affect risk?

Diversification reduces unsystematic risk.

What is the Rule of 72 used for?

To estimate the years needed to double an investment based on the interest rate.

What do price ceilings create?

Shortages in the market.

What is rational ignorance?

The avoidance of costly information when the benefits are low.

Who advocated for free markets and division of labor?

Adam Smith.

What does scarcity refer to?

Limited resources versus unlimited wants.

What does the Production Possibility Frontier show?

Trade-offs and efficiency in production.

What is perfect competition?

A market structure with many firms and identical products.

What are public goods?

Non-rival and non-excludable goods, such as national defense.

What are the functions of money?

Medium of exchange, unit of account, store of value.

What is one economic fallacy recognized by Thomas Sowell?

No solutions, only trade-offs.