ECO 2023 UCF Exam 1

Microeconomics

Studies the economy at the small-scale level.

Examines individuals and specific markets.

Macroeconomics

Studies the economy at the large-scale level, examining total output, the price level, and other aggregate measures of the economy.

Microeconomics

Deals with how imports and exports affect one existing market

Macroeconomics

Looks at total imports and exports for the entire country.

Resources

Goods and services you consume every day. 4 categories

Land, Labor, Capital, Entrepreneurial Ability

4 Categories of resources

Land

all natural resources used to produce goods and services

Labor

all physical and mental activity devoted to producing goods and services

Capital

The tools, machinery, infrastructure, and knowledge used to produce goods and services.

Entrepreneurial Ability

The talent or ability to combine land, labor, and capital to produce goods and services.

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

Incentives

Economists believe that a behavior receives a reward, people will continue. Inverse is true. This shapes the behavior of people.

Rational Decision Making

a systematic process of defining problems, evaluating alternatives, and choosing optimal solutions

Self-interest, marginal analysis, optimizing overall well being

Ingredients of Rational Decision Making

Marginal benefit

The additional plus side associated with one more unit of an activity, however, will diminish if the activity is done too much.

Marginal cost

The additional minus side associated with one more unit of an activity. If activity is continually done, this tends to rise.

Marginal benefits and costs in equilibrium

When the benefit associated with a cost is equal

Production Possibilities Schedule

a table that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology

Production Possibilities Frontier

A graphical representation of the economy's capacity for producing goods and services, assuming that it produces them efficiently. Uses data from PPS.

Absolute Advantage

The ability to produce more of a good or service than another producer using the same amount of resources as that producer.

Comparative Advantage

the ability to produce a good at a lower opportunity cost than another producer. If they have lower opportunity cost of producing a good, they have a comparative advantage.

Specialization

Occurs when an individual or firm produces a single good or service instead of many different goods or services according to their overall comparative advantages.

Terms of trade

The price must be less than the buyer's opportunity cost

Gains from trade

Can be easily measurable by comparing the levels of consumption both before, and after, the trade.

Increasing Opportunity costs

Since some resources are better suited for producing some goods or services than others, the opportunity cost increases as production increases.

Circular Flow Model

A model that shows the flow of goods and services and the interaction among households, businesses, and banks.

Households, Firms

Supply resources (inputs) to firms through the resource market. In exchange, receive monetary payments (incomes) from firms.

Firms then use resources to produce goods/services, which households buy.