econ study guide 2

econ study guide 2 - Define The productionis supply curve...

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Maximum Consumer Goods Points of Optimal Mix for Consumer and Military Maximum Military The production possibility curve expands outwards This is a demand curve This is a supply curve 1) Define – a. Economics – Is a social science of trying to predict people’s behavior and how people make choices. It is also the study of the ALLOCATION OF SCARCE resources among competing uses. i. There are two types of economics – 1. Microeconomics - The study of individual choices - markets, business decision making, consumers 2. Macroeconomics - The study of aggregate relationships - unemployment rates, pulse of the economy. b. Opportunity Cost – The cost that one incurs in their need or want for a certain resource. In order to obtain one resource than you must forfeit something else. This is what is known as your opportunity cost. 2) Basic Economic Assumptions – a. Human wants are insatiable - we all want more of something. An example of this is Tv's and cars in the US market. b. Scarcity - We have limited resources. Without scarcity there would not be the study of economics. i. There must be a distinction between scarcity and shortages. Scarcity is permanent and shortage is temporary (it is a market force). c. Optimization is our goal - maximizing our well being within our limits. d. People engage in voluntary transactions that they believe/perceive make them better off. e. People want the benefits of our choices to be greater than our costs. f. All choices involve costs - opportunity costs. g. Tanstaafl principle - there ain't no such thing as a free lunch. Production Possibility Curve – A production possibility curve is a simple graph that resembles the mix on what any particular market decides WHAT to produce. An example of this is shown below Consumer Goods +
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Military Goods + h. Assumptions – There are several determinants that play into the production possibility of a country i. Natural resources – How much of a certain resource do we have? More natural resources mean more production possibility. ii. Labor Force – How much and what is the quality of our labor force. A higher quality and/or a larger labor force have greater production possibility. iii. Capital – capital in economics is the term for the plant and equipment. When a company decides to make an INVESTMENT they are in the process of producing or taking expenditures on more plants and equipment. iv. Entrepreneurship – This is the market’s ability to be inventive and take risks. v. Gov Policy – Government policy, especially SANCTIONS, often lead to a reduction in production possibilities. vi. Technology – Technological advances, such as production line robots, often lead to greater production possibility. vii. Infrastructure – Better and more technologically advanced infrastructures lead to
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econ study guide 2 - Define The productionis supply curve...

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