ECON Ex. 1
Card Set Information
ECON Ex. 1
Notes from Chapters 1 & 2
What is economics?
Seeks to understand how societies allocate their limited resources to satisfy unlimited human wants.
What does the word "economics" derive from?
"One who manages a household"
What is economics different from other social sciences?
Based off humans acting rationally
Wide range of topics in our lives
What is scarcity?
Limited recourses in our society
Cannot produce all the goods and services we want
Limited recourses = limited products made from those
We cannot consume everything, INCOME IS LIMITED
What do Math, Scarcity, and Economics have in common?
Math = Economics
Economics = Scarcity
Math = Scarcity
Things are scarce, therefore it becomes and economic and math problem
What do Scarcity, Efficiency, and Productivity, have in common?
Scarcity means being efficient in recourses
Efficiency- no waste, (minimal), which is the ultimate goal (No waste = high productivity)
Scarcity = Efficiency = Productivity
Explain Economics in a more specific case?
Economics - science of scarcity-efficiency-productivity!
What is Laissez-Faire?
"Let them be" in French
Laissez- let them
Faire- make, pass through
Pure Capitalism (modern english)
Who is Adam Smith?
Established economics in the 18th century
Wrote "The Wealth of Nations" in 1776
What is so significant about the 18th century and economics?
Era of changes
French were really productive
What is the "Wealth of Nations"?
Written by Adam Smith in 1776
Major piece of work in economics
Self pursuit = good for society
(Bread man, baking for society, as well as doing good for himself.)
Pursuit of self interest = isn't against public interest
(Going to college, one day working in the world to self serve and do good for society)
Explain Economics and Politics...
Economics is different from politics
UNTIL- fiscal policy
What are the 3 fundamental questions of economics?
to produce to
Explain pure capitalism...
Deals with problem of scarcity then efficiency and productivity.
Explain the economic pie in pure capitalism terms...
Efficiency- size of the economic pie
: China econ. pie surpluses US
Pure cap/eff. = size / economic growth
Sustainable (high but stable)
Explain economic pie cut up!
Who gets what?
Pure social equality & economic quality- not the same
Social- divide equally among members
Economic- (capitalism)- same opportunities but different perf.
"Cannot give everyone "A's"- work for an output
What is Modern Capitalism?
Only in certain places (modern)
End result- more desirable that any other system
More productive people (able to get more ahead)
Who is the face for Pure Capitalism & Pure Socialism?
PC- Adam Smith
PS- Karl Marx
Who was Karl Marx and what did he do?
Focused on countries falling behind
More centralized economic way of doing
Founder of Modern Socialism
No freedom in market place
Some one has to reorganize the resources in market place
Give some examples for pure socialism?
Give some examples for pure capitalism?
Give examples of countries who are in the middle of the pure social and capitalist ways.
Where is US on the scale of Pure socialism and capitalism?
Gov. exp.- 20-25%
1/5 $ to uncle sam
solution to economic problem, 80% capitalism
We are mixed, but closer to pure captialism
Limited inputs = ?
What are the 2 types of outputs?
Intermediate- things bought to produce the final product. (Intermediate)
Final- purchased by final consumers- final product (All the things used to make a Big Mac)
What are some other names for Input and Output?
Input- resources, factors of production
Output- goods & services, products
What are the 4 types of economic products?
Explain Land in the economic products...
On or under earth- natural resources
Forest, farm land, oil in middle east, gifts of nature
Explain Labor in the economic products...
Lease skills to employers
brain power, skills, accounting/landscaping skills
Explain Capital in the economic products...
Only 100% man made resource!!!
Some countries- rich in land resources (lucky by geography)
Some countries- rich in capital! (US or Japan)
: Japan invested in lots of projects, became industrialized = standard of living
What is the equation for finding slope?
What is another word for "its going down" in a graph?
Its an inverse relationship b/w x and y
What is the response of x or y when it goes up 1 unit? As in an example...
Horizontal / straight line is...
Line up and down, vertical...
Point Slope- What is happening at pt A and B? Relationship wise?
Draw line from A (straight line)- along that line, find slope.
Draw line from B (straight)- find point slope
A compared to B- (A pt slope +1.2) then (B pt slope +2)
tells you the magnitude of the relationship, signs are consistent
What are the 2 points to Point Slope?
Positive or Negative (related or not)
Numerical Value (constant or not) (curved line cannot be constant!) - only look at numbers, not signs.
Is it going down or up? (ex.- Up, or Down)
What do you do when the graph is a upward U shape?
Left side = positive, slope is getting flatter sooo numerical value is falling
Right side = Negative, inverse, numerical value is steeper so rising
Middle = Slope is zero (flat at the specific point)
Scarcity relates to...
Scarcity = trade offs = opportunity cost
What is opportunity cost?
Total dollar amount you give up because of economic decision
2 types- Explict, Implicit
What are Explicit Costs?
: Big Mac $4.99
Visible money you are giving to enjoy your Big Mac
College= Books, tuition, fees..
What are Implicit Costs?
Total economic costs
Less noticible, less visible
The money you spend going to get your Big Mac, time, gas, etc.
College= time you give up to attend college, giving up chance to have job now
Economic Costs ____ Accounting Costs?
Accountants ignore implicit costs!
Economic costs > Accounting Costs
Explain trade offs in terms of effciency (economic pie).
Growing = effciency
How fast the pie is growing
Might have the same sized pie, but based on how efficient you are, your pie grows at a faster rate than others.
(China was prof. example)
Explain trade offs in terms of equity (economic pie).
Social equality = "equity"
Division is equal
Not dynamic changes, but specific pie equally divided
Nothing is happening to the size, just distributing the wealth
What are inputs?
Factors of production
Resources used by firms in their production processes to make outputs.
Land, Labor, Capital and Entrepreneurship
What are outputs?
Goods and services consumed or used for further production
If the output is consumed- final output
If they are used to make another output- intermediate
What are the 10 principles of Economics?
Economic Profits ____ Accounting Profits?
Economic Profits < Accounting Profits
ALWAYS Less than!
SO- Profits of economy are always less!
Costs of economy are always more!
Explain Marginal Analysis.
Related to scarcity
: Additional, Extra, Incremental
: College- could take similar classes at other places, but you choose KSU
Risks taken when there is Marginal Benefit and Marginal Cost.
Marginal Benefit ____ Marginal Cost?
Marginal Benefit > Marginal Costs
Marginal Benefit- something of economic dec.
Marginal Costs- things you give up
If you're not benefitting from those things, you wouldn't put so much cost into them. The benefit is always greater or you wouldn't do it!
Goes with Marginal Analysis
Important function of modern capital economy
There are dis-incentives and incentives (specific market place)
Price of product; Government gets on taxes; profit margins
Weighing out the costs and benefits to something by the incentive you get from it!
: Over taxing = less incentives to work, save, and invest.
Explain Trade / Voluntary Exchange.
: Because Wal-mart is there, you go!
Core concept is capitalism
Based on simple (free trade; vol. exchange)
Domestic- markets free
International- government economy policies are geared towards vol. exchange
Free trade = beneficial for everyone
Economy in which allocates resources through the decentrailized decisions of market participants.
In every language- means same thing
Bring successfully people together for vol. exchange with no gov. intervention
Buyers and sellers brought together
(Capitalism) Free Market System- price system- Laissez-faire system
What do they do?
ecentralized system and higher levels of productivity When free markets arn't free, that is when you get Externalisities
When there is a market failure, government gets involved.
Market is left on its own, fails to allocate socieities resources efficiently.
Externalities- actions of one person impact well-being of third parties, they get a benefit.
Spillovers- 2 types of externalities
External costs or external benefits
What are other words for External Costs and External Benefits?
External Costs- negative externalities
: enviornment pol. teaching in 3 places, driving, noise, third party is YOU. Taxing can correct negitive ext.
External Benefits- positive externalities
: Education, government subsidizes for the buyer and seller, we get to benefit!
Explain Market Power.
Someones ability to minipulate outcome of price and output
: Monopoly (ext. possibility- extreme)
1 firm- serves market, has buyers
end result isn't desirable
Private monopolies = illegal in US
jack up the price & reduce output
High productivity = high standard of living
Output/Input (ration) measure performance
Very simple model
Long run- nastions / individuals standards of living depends on production of recourses (goods)
Gives an idea of what to do (policies to make prosperty)
Growth rate production = change production %
US Prod = $55/ 1 hr. labor BUT Growth rate is 1-3%
Mx Prod = $18/ 1 hr. labor BUT Growth rate is 4-6%
They will eventually catch up!
Explain Rate of Inflation.
Could eliminate middle class within a decade
Opposite = deflation (rise and fall)
hyperinflation- 2400%, makes the dollar worth nothing
What is the "Purchasing power of money"?
Voluntary goods and services that money can buy
Over all prices go up = Purchasing power goes down
Explain the Phillips Curve.
Shows the inverse relationship between the unemployment rate and the inflation rate
Overall prices go up = Unemployment goes down
Overall prices go down = Unemployment goes up
What is the rate of inflation?
% of change in overall prices