Economics Midterm Flashcards

Sunk Cost

Costs that have been incurred without the ability of recovery.

Factors of Production

Land, Labor, Capital, Entrepreneurial ability

PPF/PPC
Production Possibilities Frontier/Curve

A model that shows all combinations that can be produced if all of society's resources are used efficently.

Economic Goals
(G.E.S.F.E.)

Growth, equity, security/stability, freedom, efficency.

Tragedy of the Commons

Someone takes a lot of resources that aren't well enforced or don't belong to someone. They will be taken advantage of.

Externalities

Any costs or benefits or production that aren't taken into account by those who create the costs or benefits.

Positive/negative Externalities

Positive: benefits received from actions that are not your own.
Negative: costs received from actions that are not your own.

Command Economy

Decisions are made by the government.
Prices are set by the planners.

Traditional Economy

ex: tribes
What's always been produced.
How it's always been produced.
For whom it's always been produced.

Market Economy

Buyers answer what's produced.
Sellers determine how it's produced.
Income depends on production for whom.

Marginal Analysis

Decision makers think about the additional costs and benefits of each additional unit.

Diminishing Marginal Utility

The consumers generally receive less satisfaction from additional units of a good thing received.

Diminishing Marginal Returns

When the marginal cost exceeds the marginal benefit.

Incentives

A factor that motivates a person to achieve a certain good.
Positive incentive encourages someone

Opportunity Cost

The "next best thing"
The "opportunity lost"
The next top thing that you want to do, next best alternative.

Choices

Scarcity implies choice.
Cost is a trade off.
Explicit:out of pocket
Implicit:value of resources that could've been used elsewhere.

Scarcity

A resource that has 2 or more alternative uses
All resources are scarce.
When there is a shortage of something.

Market Structure (determinates)

# sellers, ease of access, type of product.

Barriers to Entry

Government barriers: licenses, copyrights.
Technological superiority
Exclusive access to raw materials.

Market Structure (monopoly)

One seller, charge maximum price someone is willing to pay, the seller has significant "market power"

Market Structure (factors promoting competition)

All selling identical products
Product differentiation
package, advertise, actual product differentiation

Economic Rules

People respond in predictable ways to positive and negative incentives
Individuals make tradeoffs and must make choices
Rational people think at the margin.

Demand 1.

Shows various amounts of an item that buyers are willing and able to buy at a series of prices during a specified time period.

Price Ceilings and Floors

Floor- A minimum price set by the government that is above the market equilibrium price. It is when there is a surplus.
Ceiling- A maximum price set by the government that is below the market equilibrium price. Used when there is a shortage of something.

Microeconomics

Making price changes, small markets.

Demand 2.
TIMERR

Price up, Quantity Demanded down.
T-tastes
I-income
M-market
E-expectations
R-related goods prices-substitutes
R-related goods prices common goods

Supply 1.

The higher the pay,the more people are willing and able to work.
Price up, Quantity Supplied up. vice versa.

Supply 2.

R- resource cost
A-alternative output price
T- technological improvement
N- number of suppliers
E- expectations
S- subsidies
T- taxes

Shortages and Surpluses

Shortage: not enough product because- price is too low, or demand is too high.
Surplus: too much product because: price is too high, or demand is too low.

Market structures 1.
P.I.I.C

To function well, markets require:
property rights,
incentives,
information,
competetion

Market Structures (competitive market)

lots of competition
easy to get into
very similar products
no single seller can control price

Oligopoly

Non collusive: unlikely collusion
*legal
*don't talk to eachother
Collusive: potential cartel
*illegal
*talk to each other
*closer to monopoly

There are a few sellers in an oligopoly

Law of Increasing Opportunity Cost

With each additional unit added, the opportunity cost goes up.