Term
Question#1
What is economics? |
|
Definition
| the study of the choices people make to attain their goals |
|
|
Term
Question #1
Positive Science vs. Normative Science vs. Art |
|
Definition
-Positive science is a system of knowledge concerning WHAT IS.
-If...then... measures cause and effect
-the goal of pos. economics is to develope a theory or hypothesis that yields valid meaningful predictions about a phenomena not yet observed.
-independent of ethical judgement
EG: beer taxes, drinking age
-Normative science is a body of systemized knowledge concerning WHAT OUGHT TO BE.
-cause and effect measures outcomes by assumptions
-cannot be refuted by facts; values can be debated not proven
-not independant of positive economics
-Art: system of rules for achievement of a given end
~~~~
*Economics attempts to answer two types of questions: positive and normative...
*POSITIVE* attempts to understand behavior and the operation of economies w/o making judgements about whether the outcomes are good or bad.
*NORMATIVE* economics looks at the result of economic behavior and asks whether they are good or bad and whether they can be improved |
|
|
Term
Question #1
What are Economic Models and how do they relate to scientific analysis? |
|
Definition
theories or 'models' that economist rely on to analyze real-world issues, such as the economic effects of outsourcing (obtaining goods from an outside or foreign supplier)
they are used to make ecnomic ideas sufficiently explicit and concrete to be used for decision making by individuals, firms or gvt. |
|
|
Term
Question #2
Explain relationship between SCARCITY & OPPORTUNITY COSTS |
|
Definition
scarcity: the concept of an imbalance between desires and resources
>>where there is unlimited wants that exceed the limited resources.
opportunity costs: the best alternative that we give up when we makea choice or decision.
eg: if you go to the movies or not...1st money when you spend that money for the movie you give up the monnies use for other things
their relationship:
trade-offs or choices arise from scarcity |
|
|
Term
Question #2
AD/DISadvantages of Specialization |
|
Definition
Advantages:
1) utilization of natural aptitudes (natural ability)
2) development & utilization of skill & knowledge (practice of skills)
3) task specialization (assembly line faster production)
4) natural advantages w/r to natural resources
5) artificaial specialization of material agents (development & use of machinery)
6) minor technical gains (in efficiency)
Disadvantages:
costs of interdependence
the problem of organization:
1) incentives
2) communication adn coordination
3) selection
4) decision process & structure
5) control |
|
|
Term
Question #2
Explain 6 types of economic choices that must be made by society |
|
Definition
1) what to produce?
2) how to produce?
3) distribution: (who gets the products)
4) savings/investment vs. consumption
5) who will make the choies
6) how will the choices be made? (coluntary, cooperation, coercion) |
|
|
Term
Question #2
5+ benefits of free exchange |
|
Definition
1) allows consumers to engage in trade (specialization) which increases their standard of living
2) encourages competition amongst buyers and sellers which leads to fair, low prices
3) a larger variety of choices
4) Stimulates innovation
5) permists voluntary and informal market exchange |
|
|
Term
Question #3
Explain roles of prices in solving the economic problems of:
-production
-technology
-income distribution |
|
Definition
-Price in Production:
producers looks at market prices to see where profits can be made. High prices means greater chances for profit so producers distribute their resources accordingly to produce at MINIMAL cost in order to MAXIMIZE profit.
-Prices and Technology:
Methods of production are chosen through lowest cost with the highest output
-Prices and Income Distribution:
income distribution depends on the value of the resources that you are willing to make available to the market. The market will pay a high price for your resources if they are vulnerable. |
|
|
Term
Question #3
Identify 4+ determinants of Demand in a market and Supply |
|
Definition
DEMAND:
1)Prices of related goods substitutes& complements
2)income and wealth
3)tastes
4)population and demographics (size of market)
5)expectations
-Supply:
1)Price of the good
2)technological change (output per input)
3)prices of substitutes in production
4)expected of sellers future prices
5)number of sellers
6)costs of resources |
|
|
Term
Question #4
What is Wilfred Pareto's definition of
"economic efficiency" |
|
Definition
A situatoin is efficient if a change to improve anone results in loss for someone else (=don't waste resources)
Exchange Eff.
Production Eff.
Product Mix Eff. |
|
|
Term
Question #4
three types of economic efficiency |
|
Definition
1) Exchange EFF-gains from voluntary trade achieved
2) Production EFF- production at lowest resource cost
3) Product Mix EFF- production that consumers value most |
|
|
Term
Question #4
How does a competitive economy achieve economic efficiency? |
|
Definition
|
|
Term
Question #4
What is the effect of a tax on efficiency? |
|
Definition
Taxes make markets less efficient bc they make a wedge between the price paid by consumers and the revenue received by the sellers.
-the increase in the price paid by the consumers discourages demand and the decreases in price received by sellers discourages supply. Exchange is discouraged by the amount of goods in teh market and is therefore not an efficient quantity because of the government intervention. |
|
|
Term
Question #4
why do economists believe that tax rate increases may reduce tax revenue? |
|
Definition
tax increase on consumers:
-higher tax rates mean taht when consumers work they get less income
-a lower income discourages consumers from entering the job market
-if there are less consumers entering the job market there will be less people to collect tax income from
tax increase on producers:
-higher tax rates mean that producers get less revenue because the price of the good will be higher adn consumers will buy less of it
-if producers are receiving less revenue they will produce less
-if there are less goods beind produced there will be less tax revenue to collect
-also if less is being produced some workers may have been laid off and there will be less tax revenue to collect from those consumers |
|
|
