1. Three Central Coordination Problems any Economy must solve:
    • 1: What, and how much to produce
    • 2: How to produce it
    • 3: For whom to produce
  2. Scarcity
    • Means the goods avaliable are too few to satisfy indivuals desires.
    • constantly changing
    • quantity of goods,services and usable resources depends on technology and human action.
  3. Deduction
    method of reasoning in which one deduces a theory based on a set of almost self evident principles
  4. Induction
    method of reasoning in which one develops general principles by looking for patterns in data
  5. Abduction
    Combination of deduction and induction
  6. Marginal Cost
    additional cost over and above costs all ready incured
  7. Marginal benefit
    additional bebefit above and beyond what has already accrued
  8. Sunk cost
    costs that have already been incurred and cannot be recovered
  9. The Economic decision rule
    • if marginal benefits exceed marginal costs do it
    • MB>MC= do it
    • if marginal costs exceed marginal benefits don't do it
    • MC>MB= don't do it
  10. Oppurtunity cost
    • the benefit foregone of the next best alternative to the activity you have chosen
    • basis of cost/benefit economic reasoning
  11. Economic forces
    are mechanisms that ration scarce goods
  12. Market Force
    Is an economic force that is relativly free rein by society to work through the market
  13. Economic model
    a framework that places the generalized insights of the theory in a more specif contextual setting
  14. Economic principle
    a commonly held economic insight stated as law or general assumption
  15. Experimental Economics
    a branch of economics that studies the economy through controlled labratory experiments
  16. Natural Experiments
    Naturally ocurring events that aproximate a controlled experiment where something changed in one place but has not changed somewhere else
  17. Theorems
    propositions that are logically true based on the assumptions in a model
  18. Precepts
    policy rules that conclude that a particular course of action is preferable
  19. Invisible hand theorem
    a market economy through the price mechanism will tend to allocate resources efficiently
  20. Efficiency
    means achieving a goal as cheaply as possible
  21. Microeconomics
    is the study of indivual choice, and how that choice is influenced by economic forces
  22. Macroeconomics
    is the study of the economy as whole
  23. Economic institutions
    are laws, common practices, and organizations in a society that affect the economy
  24. Economic policies
    are actions or inactions taken by gov to influence economic actions
  25. Objective policy analysis
    keeps value judgements seperate from analysis
  26. Subjective policy analysis
    reflects the analyst's views of how things should be
  27. Positive economics
    study of what is
  28. Normative economics
    study of what should be
  29. Art of economics
    Using the knowledge of positive economics to acheive the goals determined in normative economics
  30. Production possibility table
    lists a choices oppurtuniy cost by summarizing what alternatine outputs you can achieve with your inputs
  31. Output
    result of activity
  32. Input
    what you put in production process to achieve an output
  33. Production possibilities curve (PPC)
    • a curve measuring the maxium combination of outputs that can be obtained from a given number of inputs
    • graphical representation of the oppurtunity cost concept
  34. Increasing Marginal Opportunity Cost
    states that opportunity costs increase the more you concentrate on the activity
  35. Comparative advantage
    ability to be better suited to the production of one good than another
  36. Productive efficiency
    achieving as much output as possible from a given amouont of inputs or resources
  37. Value of trade
    allows consumption outside of PPC
  38. Laissez-faire
    an economic policy of leaving coordination of indivuals actions to the market
  39. Outsourcing
    the relocation of production once done in the United States to foreign countries
  40. Globolization
    the increasing integration of economies,cultures, and institutions across the world
  41. The law of one price
    wages of equal workers in one country will not differ significantlyfrom the wages of workers in another institutionally similar country
  42. Market economy
    economic system based on pvt property and market, indivuals decide what, how and for whom to produce
  43. Socialism
    economic system based on indivuals goodwill to others, not self interest,society decides what, how and for whom to produce
  44. Capitalism
    economic system based on market ownership of means of production resides with small group of indivuals called capitalist's
  45. Feudalism
    economic system where tradition rules
  46. Mercantilism
    economic system where gov determines what, how, and for whomby doling out rights to undertake economic activity
  47. What does the industrial revolution lead to being dominant
  48. Factor market
    households supply labor/other factors to production and get paid
  49. Goods market
    business produce goods and services and sell to households, other business and Gov
  50. Business
    pvt production units in society
  51. Entepenurship
    ability to organize and get something done
  52. What % of U.S. economy services
  53. Consumer sovereignity
    consumers wishes determine whats produced
  54. Sole propietorship
    • business with one owner
    • 71% U.S. business
    • unlimited liability
  55. Partnership
    • business with two or more owners
    • unlimited liability
  56. Corporations
    business that are treated as a person and are legally owned by stockholders, not liabile for actions of corporate personhood
  57. Equity capital
    proceeds from sale of stock
  58. limited liability
    stockholders liability limited to amount invested
  59. Finacial assets
    assets that acquire value from an obligation of someone else to pay
  60. Four types of E-commerce
    • B2B-bus to bus
    • B2C-bus to consumer
    • C2B-consumer to bus
    • C2C-consumer to consumer
  61. Three sectors of market economies
    • business
    • households
    • Gov
  62. Household
    group of indivuals living together and making joint decisions
  63. Gov as actor and referee
    • actor-collecting taxes and spending
    • referee-sets rules that determine relationship between bus and households
  64. Specific roles of gov in economy
    • provides stable institutions and rules
    • promotes effective and workable competition
    • corrects for externalities
    • ensuring economic stability and growth
    • providing public goods
    • adjusting for undesirable market results
  65. Provides stable inst and rules?
    • Gurantees contracts
    • punishes law breakers
  66. Promoting effective and workable competition?
    • promotes competition
    • prevents monopolies
  67. Monopoly power
    ability of indivuals and firms currently in business to prevent others from entering same kind of business
  68. correct for externalities
    what is an externality?
    • effect of a decision on a third party not taken into account by decision maker
    • canbe positive/negative
  69. Ensure economic stability and growth?
    • dealing with macroeconomic externalities
    • externalities that affect the levels of unemployment, inflationor growth in economy as a whole
  70. Provides public goods?
    good that if supplied to one must be supplied to all and whose consumption by one does not prevent consumption by others
  71. Private goods
    good that when consumed can not be consumed by another
  72. Freerider
    person who gets benefit but does not contribute to paying cost
  73. Adjust for undesirable market results?
    • demerit goods-goods and activities gov believes are bad for people even though they may chose to do them
    • merit goods-goods or activities gov believes are good for people evn if they may chose not to do them
    • market failures-situations where the market does not lead to desired result
  74. Global Corporations
    corps with substantial operations in both prod/sales in more than one country
  75. World bank
    multinational ,international finacial institution that works with developing countries to secure low interest loans to foster economic growth
  76. International monetary fund
    multinational, international, finacial institution that is concerned primarily with monetary issues. deals with international finacial issues
  77. World Trade orginization
    works to reduce trade barriers
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