Chapter 1 Definitions/Key Concepts
The study of how people manage scarcity.
What is Economics?
What may have been your opportunity cost for coming to this SI Session?
(ANSWER IS SUBJECTIVE)
-Sleeping, Eating, Working on Homework, etc.
True or False: Absolute advantage is the basis for trade
False
Comparative advantage is the basis for trade
If Anne can produce either 25 diamonds or 75 rubies, then what is her opportunity cost to make one diamond?
What about making one ruby?
OCD = 75/25 = 3 rubies
OCR = 25/75 = 1/3 diamonds
Flat, round, and covered in syrup, this is my favorite breakfast food.
What are Pancakes?
The three core choices that confront every nation.
HOW to produce?
FOR WHOM to produce?
Here is Dan's PPF for Apples and Oranges:
Oranges Apples
A 400 0
B 350 200
C 200 400
D 0 500
Does Dan have constant or increasing opportunity cost when producing apples and oranges?
What is Increasing Opportunity Cost?
If the country can produce a good at a lower opportunity cost, it is said they have this for that good.
What is Comparative Advantage?
When two countries specialize and trade, they gain the ability to increase their what?
Consumption Possibilities
Love is zero and you always try to serve an ace, what sport do I play?
What is Tennis?
Never the first best choice, nor the third. This concept is the second best alternative (AKA the next best thing).
What is Opportunity Cost?
Describe productive efficiency and allocative efficiency.
Productive - when good/service is made at lowest possible cost
Allocative - when production matches consumer preferences
In the event that a country does not engage in trade. In other words, the country's consumption equals its production.
What is Autarky?
Say Ian can produce 1 barrel of wine for 5 bushels of wheat.
Frank can produce 1 barrel of wine for 4 bushels of wheat.
Would these terms of trade be accepted? If not, suggest a trade agreement that would work:
1 barrel of wine for 3 bushels of wheat
No, the ToT would not work. Any viable trade agreements must be 1 barrel of wine for 4 < x < 5 bushels of wheat.
Must be in between the respective opportunity costs!
Lots of folding and risking a paper cut, this is my favorite crafting activity.
What is Origami?
This is described as having unlimited wants, but not enough resources to fulfill them.
What is Scarcity?
When talking about the optimal decision, firms will continue to produce up until this point.
What is Where the marginal benefit = marginal cost?
Whenever a nation is focused on producing the good they have a comparative advantage in, it is said they are doing this.
What is Specialization?
Draw a PPF and label points that are efficient, unattainable, and inefficient.
Anything on PPF line is efficient.
Inside PPF is inefficient.
Outside PPF is unattainable.
Small, comes in pairs and you'll never see me without them. I happen to collect these.
What are Earrings?
The 3 key economic ideas, also described as the assumptions we make in economics. What are they?
1. People are rational
2. People respond to incentives
3. Optimal decisions are made at the margin
Draw a spectrum and label the 3 types of economies. Describe them
Market Mixed Command
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Market - households and firms answer 3 questions
Mixed - mostly controlled by buyers and seller but with some govt. intervention
Command - govt. decides how resources are allocated
The ratio that a country trades its exports for imports.
What is Terms of Trade?
Give one reason why we don't see complete specialization in the real world.
1. Not all goods are traded internationally
2. Tastes/preferences differ
3. Production of most goods involve increasing OC
Something weird in your neighborhood.
Who are you gonna call? This is my favorite movie.
What is Ghostbusters?