Macro 2

  1. Opportunity Cost
    The value of the best alternative forgone when an item or activity is chosen
  2. Absolute Advantage
    The ability to make something using fewer resources than others produce
  3. Comparative Advantage
    The ability to make something at a lower opportunity cost than other produce.
  4. Specialization
    focusing work effort on a particular product or single task.
  5. Division of Labor
    Breaking down goods production into separate tasks.
  6. Barter
    the direct exchange of one good for another without using money.
  7. PPF: (Production Possibilities Frontier)
    • -Inside PPF: Inefficient
    • -Outside PPF: Unattainable

    PPF Curve is bowed out due to law of increasing opportunity cost.
  8. Changes in Resource availability
    • -Size, health of labor force
    • -Skills of labor force
    • -Availability of other resources
  9. Changes in Capitol Stock
    -More/less output
  10. Changes in Technology
    -Employs resources more/less efficiently
  11. Changes in the rules of the game
    • -Formal and informal institutions
    • -Economic growth
  12. 3 Big Questions
    • 1. What are we going to make?
    • 2. How are we going to make it?
    • 3. Who are we going to make it for?
  13. Pure Capitalism System
    • -Private property rights
    • -Unrestricted Markets
    • -Voluntary buying and selling
    • -Adam Smith "Invisible Hand"
  14. Pure Command System
    • -Public/Communal property ownership
    • -Government planners direct resources/coordinate production
    • -Communism
  15. Mixed and Transitional Economy
    • -Increasing role of government in capitalist economies
    • -Increasing role of markets in command economies
  16. Capitalism Flaws
    • -People with no resources would starve
    • -Monopoly
    • -Side effects for those not involved
    • -No public goods
  17. Command System Flaws
    • -Resources used inefficiently/wasted (no incentives)
    • -Preferences of planners limits variety of products
    • -Less freedom of economic choice
  18. Shifts
    • -Increases in demand shift demand curve to the right
    • -Decreases shift to the left
  19. Law of Demand
    Inverse relationship between quantity and price is why curve is downward sloping.
Card Set
Macro 2
Test 1