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Quiz 1 9/16/13

Economics

social science that studies the choices that individuals, businesses, governments and societies make to cope with scarcity and incentives of those choices

Microeconomics

how to make the best choices on a smaller level (individual/business)

Four Major Factors of Production

land, labor, capital and entrepreneurship

Adam Smith

The Wealth of Nations (1776), The Invisible Hand, market mechanism (more trucks, less tanks), Laissez Faire (gov out of econ)

Tradeoffs

deciding the what, how and for whom (Do we tax the rich to give to the poor?)

Opportunity Cost

cost of accepting one action over another, losing the benefit of what is rejected, hoping that the benefit of your choice exceeds the cost of what is lost

Marginal Analysis

means of taking no action where the marginal cost exceeds the marginal benefit

Good/Bad of Theory/Models

reality through politics and imperfect knowledge hints at the flaws of theory

Marginal Cost

the cost of an activity

Marginal Benefit

the benefit that arises from an increase of activity

Opportunity Cost

cost of accepting one action over another, losing the benefit of what is rejected and hoping the benefit exceeds the cost of what is lost

Production Possibilities Curve

combination of things you will likely produce at a given time with the resources you have

Demand Curve

graphs the relationship between price and demand on an individual basis and market basis

Limit to producing on the production possibilities

marginal cost; production must not exceed the point to where marginal costs exceed marginal revenue

Measure of Production Possibilities Curve

measure whether or not the production of another product is good, if its profits are less than what you could have gotten from the sale of the other

Principal of Decreasing Marginal Benfit

goes down the more we have something

Comparative Advantage

if you have a skill by which you can produce a product faster and better than any other, then that skill should be exploited; ability of a firm to produce a specific good at a lower cost than competitors

Absolute Advantage

only exists if you are able to produce a product at a lower cost; ability of a firm to produce a specific good with fewer resources than its competitors

Comparative or Absolute Better?

Comparative > Absolute; problem is that you my be able to produce something with less cost, but may not be very profitable (ex. Braille bumper stickers)

Skill for Comparative Advantage

produce a product faster and better than any other, that skill should be exploited

Firm vs. Market

Firms: econ unit that hires factors of production and organizes those factors to produce and sell goods and services
Markets: are any arrangement that enables buyers and sellers to get info and do business w/ each other

Market Place vs. Market Network

markets are not necessarily a place, but a network such as the food market; transactions are facilitated by making deals with the use of telephone equipment, fax machines, computers, etc.

Property Rights

social arrangements that govern ownership, use, disposal of resources, goods and services

How Markets Work

Only work when property rights exist

Real Property

building, plant, equipment

Financial Property

stocks, bonds, savings accounts

Intellectual Property

intangible products such as books, music, computer programs

When Property Rights are enforced

incentive to specialize and produce goods in which you have comparative advantage to maximize use of said property

When environment exists where property can be stolen

effort/resources used in order to protect said property

Law of Demand

higher the price of good/service, smaller the quantity demanded

Law of Supply

higher the price the market is willing to pay, the greater is the quantity supplied

Marginal Benefit

measure of willingness and ability to pay

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