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32 terms

ECO 203 Quiz 1

Quiz 1 9/16/13
STUDY
PLAY
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