Untitled Flashcards Set

• What is scarcity?

  • The limited nature of resources relative to human wants.

• What is economics?

  • The study of how individuals and societies allocate scarce resources.

• What is opportunity cost?

  • The next best alternative foregone when making a decision.

• What are the three questions every society must answer?

  1. What to produce?

  2. How to produce it?

  3. For whom to produce?

• What are the three ways to organize an economy?

  • Market economy (U.S., UK) – Decisions made by individuals and firms.

  • Command economy (North Korea, Soviet Union) – Government-controlled decisions.

  • Mixed economy (France, China) – A combination of market and government decisions.

• What are the four main economic super sectors?

  • Households, businesses, government, and foreign sector.

• What are goods vs. services?

  • Goods: Physical products (e.g., cars, food).

  • Services: Intangible offerings (e.g., healthcare, education).

• What is a durable good vs. nondurable good?

  • Durable goods: Long-lasting (cars, furniture).

  • Nondurable goods: Consumed quickly (food, toiletries).

• According to Adam Smith, people are motivated by what?

  • Self-interest.

• What are incentives?

  • Rewards or punishments that influence behavior.

• What factors promote economic growth?

  • Stable institutions, property rights, free markets, investment, education.

• What is inflation?

  • The general rise in prices over time.

• What are economic booms and busts?

  • Boom: Period of rapid growth.

  • Bust: Period of economic decline.

• What does “thinking on the margin” mean?

  • Making decisions based on small incremental changes.

• What is the relationship between economic growth and well-being?

  • Economic growth often leads to improved living standards.

Chapter 2: Production and Trade

• What is the production possibilities frontier (PPF)?

  • A curve showing the maximum possible output combinations of two goods.

• What is absolute advantage?

  • The ability to produce more of a good than another entity using the same resources.

• What is comparative advantage?

  • The ability to produce a good at a lower opportunity cost than another entity.

• How do specialization and trade affect consumption?

  • Specialization and trade allow entities to consume beyond their PPF.

• What is the relationship between knowledge, productivity, and economic output?

  • Knowledge increases productivity, leading to higher economic output.

• What is the relationship between trade and specialization?

  • Trade enables specialization, which increases efficiency and wealth.

Chapter 3: Demand and Supply

• What is demand?

  • The willingness and ability to purchase a good or service.

• What is the law of demand?

  • As price decreases, quantity demanded increases (and vice versa).

• What factors shift the demand curve?

  • Income, preferences, prices of related goods, expectations, number of buyers.

• What is consumer surplus?

  • The difference between what consumers are willing to pay and what they actually pay.

• What is supply?

  • The willingness and ability to sell a good or service.

• What is the law of supply?

  • As price increases, quantity supplied increases (and vice versa).

• What factors shift the supply curve?

  • Input costs, technology, expectations, number of sellers, government policies.

• What is producer surplus?

  • The difference between the price received by producers and their costs.

Chapter 4: Market Equilibrium

• What is market equilibrium?

  • The point where quantity demanded equals quantity supplied.

• What happens in a market surplus?

  • Prices tend to fall.

• What happens in a market shortage?

  • Prices tend to rise.

• How do shifts in demand and supply affect equilibrium?

  • Increased demand raises price and quantity; increased supply lowers price but raises quantity.

Chapter 5: Elasticity

• What is elasticity of demand?

  • The responsiveness of quantity demanded to price changes.

• What factors influence demand elasticity?

  • Substitutes, necessity vs. luxury, time horizon.

• What is elasticity of supply?

  • The responsiveness of quantity supplied to price changes.

Chapter 6: Taxes and Subsidies

• What is a commodity tax?

  • A tax on goods, affecting supply and demand.

• Who bears the tax burden?

  • Determined by the relative elasticities of demand and supply.

• What is deadweight loss?

  • The loss of economic efficiency due to taxation.

• What is a subsidy?

  • A government payment to encourage production or consumption.

Chapter 7: Price Signals and Speculation

• How do prices serve as signals?

  • They reflect scarcity and consumer preferences.

• What is speculation?

  • Predicting future prices to profit from market movements.

• What are futures?

  • Contracts to buy/sell at a future date, influencing price stability.

Chapter 8: Price Controls

• What is a price control?

  • Government-imposed limits on prices.

• What is a price ceiling?

  • A maximum legal price (e.g., rent control), leading to shortages.

• What is a price floor?

  • A minimum legal price (e.g., minimum wage), leading to surpluses.