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122 Cards in this Set

  • Front
  • Back
Definition of Opportunity Cost
-the best alternative that we forgo, or give up, when we make a choice or a decision
Definition of Efficency
-to produce something at the lowest cost with the available scarce resources that one has
Definition of Globalization
-spreading your economy and ideology to other places in the world
Defintion of Gross Domestic Product
-total output of the economy without foreign subsities
Definition of Gross National Product
-total output of the economy with foreign subsities
4 reasons why we should study economics
-learn a way of thinking
-understand society
-understand global society
-better informed voter or citizen
Definition of Economics
-the study of how individuals and groups make decisions based on scarse resources
4 principles of individual choices
-resources are scarse
-the real cost of something is what you must give up to get it (opportunity cost)
-how much? (marginalism)
-people usually exploit opportunities to make themselves better off
4 factors of production
-capital (productive assets)
-human capital (skills)
Definition of Resources
-anything that be used to produce something else
Definition of Marginalism
-the final unit of output (additional cost)
Definition of Sunk Cost
-costs that are already spent and they can not be avoided
Definition of Incentives
-rewards to make you work
3 fundamental concepts of economics
-opportunity cost
-efficient markets
Definition of Efficient Markets
-all profit opportunities are eliminated because so much information is put out there in advance
Definition of Prospectus
-report of what the company is doing (insider trading)
Definition of Industrial Revolution
-the period in england during the late eighteenth and early 19th centuries in which new manufacturing technologies and improved transportation gave rise to the modern factory system and a massive movement of the population from the countryside to the cities
Definition of Postive Economics
-an approach to economics that seeks to understand behavior and the operation of systems without making judgements. it describes what exists and how it works
Definition of Normative Economics (Policy Economics)
-an approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action.
Efficient Markets
-where all profit opportunities are eliminated
Definition of Descriptive Economics
a compilation of data/stats
2 points about Descriptive Economics
-You make decisions based on data and this data will prove whether this assumption is true or not and if it is true it meets some standards and becomes a theory
-Describes phenomenon and facts
Definition of Correlation
-measures the relationship between two variables
Definition of Model
-a formal statement of a theory usually by mathematical statement
Definition of Consumption Model
-the goods we buy
3 types of Consumers
4 types of Models
-Government Spending
Definition of Investment Model
-the business aspect; businesses expanding their operations by more machinery
Definition of Government Spending Model
-consists of government purchases, which can be financed by taxes or government borrowing
Definition of Export-import Model
more exports than imports = surplus-Now we have a deficit because we’re importing more than we’re exporting
Definition of Fiscal Policy
-when the government spends and taxes lower
Definition of Ockham's Razor
-principle that irrelevent detail should be cut away
Definition of Ceteris Paribus (all else equal)
-device used to analyze the relationship between two variables while the other variables are held unchanged
What is the most commom method of expressing the quantitative relationship between two variables?
-graphing on a two dimensional plane
Definition of Post Hoc, Ergo Propter Hok after this (in time), therefore because of this.
-a common error made in thinking about causation: If Event A happens before Event B, it is not necessarily true that A caused B
Definition of the Fallacy of Composition
-the erroneous belief that what is true for a part is neccessarily true for the whole
Definition of Empirical Economics
-the collection and use of data to test economic theories
4 criterias for judging economic outcomes
Definition of Efficiency of Economics
-allocative efficiency, n economy that produces what people want at the least possible cost
Definition of Equity
Definition of Economic Growth
-An increase in the total output of an economy
Definition of Stability
-a condition in which national output is growing steadily, with low inflation and full employment of resources
Definition of Slope
-rise/run... measures the riskiness
What to do to find the slope of a non linear line
-find multiple slopes
3 types of graphs
-scatter plot
-pie chart
-bar graph
Definition of Progressive Tax
-for the more income u make, the more is taken
(highest percent that can be taken: 33%)
Definition of Truncated Line
-line with a symbol cutting it off... it means the values made big jumps
5 things that the Economy of One is dependent on
-limited supply
Definition of Production possibility frontier
-graph that shows alll the combinations of goods and services that can be produced if all of society's resources are used efficiently
3 basic questions must be answered in order to understand an economic system
-what gets produced?
-how is it produced?
-who gets what is produced?
Definition of Capital
-things that are produced and used in the production of other goods and services (ex: buildings, roads, robots)
Definition of Production
-the process that transforms scarce resources into useful goods and services
Definition of inputs or resources
-anything provided by nature or previus generations that can be used directly or indirectly to satisfy human wants
Definition of outputs
-usable products
2 types of markets
-money market
-capital market
Definition of money market
-where debt securities are traded with maturities LESS than one year (consumer goods)
Definition of capital market
-where debt securities are traded with maturities GREATER then one year (capital goods)
Definition of Comparative Advantage
producer has an comparative over another in the productionin the production of a good or service if it can product that produce at a lower opportunity cost
Marginal Rate of Transformation (MRT)
-the slope of the production possibility frontier
Definition of Absolute Advantage
-a producer has an absolute advantage over another in the production of a good or service if it can produce that product using fewer resources
ricardos theory that specialization and free trade will benefit all trading parties, even those that may be absolutely more efficient producers
-Comparitive Advantag
Definition of Consumer Goods
-goods produced for present consumption
Definition of Investment
-the process of using resources to produce new capital
Definition of Unemployment
-during economic downturns or recessions, industrial plants run at less than their total capacity. when there is unemployment of labor and capital, we are not producing all that we can
Definition of Inefficiency
-waste and mismanagement are the results of a firms operating below its potential
2 things that inefficiency can result because of
-mismanagement of an individual firm
-mismanagement of an entire economy
Definition of the Efficient mix of output
-to be efficient, and economy must produce what people want
Definition of Command Economy
-an economy in which a central government either directly or indirectly sets output tartets, incomes, and prices
Definition of laissez-faire economy
-an economy in which individual people and firms pursue their own self-interests without any central direction or regulation
Definition of prime rate
-the privlaged rate for banks to borrow
Definition of consumer sovereignty
-consumers decide or dictate what will be produced/not produced by choosing what/what not to purchase
Definition of free enterprise
-freedom to start a business
Definition of Reserve requirement
the amount of capital u have... u have to put 10% of it away and not touch it (created by fed after depression)
Definition of financial intermeriarie
-any organization that takes ur money and gives u an interest rate... then turn around and lend it out at another rate
3 ways firms can get money:
-issue stock
-issue bonds
Chart of Financial Intermediation
SAVERS AND LENDERS (Households, Businesses, Government)


-Financial Intermediaries (Banks)
-FInancial Markets (Stock)
-Investment Bankers
(Aquisitions, Underwriting)


Definition of Financial Disintermediation
-when it goes straight to the markets
Definition of Derivative
-underlining value
Definition of Option
-a contract which gives the individual the right but not the obligation to purchase or sell the underlying asset
Definition of Call Option
Definition of Put Option
Definition of Futures
-a contract which gives the individual the right and the obligation to settle the transaction
Definition of Market Price
-what the stock is currently going for
Definition of Strike Price
-a contract that allows u to buy at a particular price no matter what the market price does
Definition of Distribution of output
-the amount that any one household gets depends on its income and wealth
Definition of income
-the amount that a household earns each year. (short term)
Definition of wealth
-the amount that households have accumulated out of past income through saving or inheritance (long term)
Definition of price theory
-the method that moves our free market economy
Definition of the firm
-an organization that transforms resources(inputs) into products.(outputs) firms are the primary producing units in a market economy.
Definition of the entrepreneur
-a person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business
Definition of households
-the consuming units in an economy
Definition of product or output markets
-the markets in which goods and services are exchanged (goods, services)
Definition of factor or input markets
-the markets in which resources used to to produces products are exchanged (labor, capital, land)
Definition of Labor Market
-the input/factor market in which households supply work for wages to firms that demand labor
Definition of Captital Market
-the input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods
Definition of Land Market
-the input/factor market in which households supply land or other real property in exchange for rent
Definition of Demand Schedule
-The Chart of the demand curve (when a certain item is demanded at a certain price (higher to lower in terms of price)
Definition of Demand Curve
-a graphical representation of the demand schedule
Direction of the Demand Curve
-Negatively Sloped
Direction of the Supply Curve
-Positively Sloped
Definition of the lure of demand
-the price level leaves the buyer a small percentage of the quantity
Reason that movement occurs along the demand curve
-moves because of change in price (changes quantity demanded)
Reason that the demand curve shifts
shifts because an increase of demand (based on income, preference, taste, expectations, etc)
Definition of substitute
-something to draw demand away from an event
(price goes down, quantity goes down)
Definition of complement
-something to force prices to lower
(price goes down, quantity goes up)
6 factors that a households decision about what quantity of a particular output, or product, to demand depends on
-the price of product
-the income available in household
-the households amount of accumulated wealth
-the prices of other products available to the household
-the households tastes and preferences
-the households expectations about future income, wealth and prices
Definition of quantity demanded
-the amount of a product that a household would buy in a given period if it could buy all it wanted at the current market price
2 factors of the demand curve
-they intersect the quanitity (x-axis), a result of time limitations and diminishing marginal utility
-they intersect the price (y-axis), a result of limited incomes and wealth
Definition of happiness effect
-u get tired of doing the same thing over again
Profit equation
Profit = total revenues - total costs
What is thje modivation of supply?
Definition of normal goods
-goods for which demand goes up when income is higher and for which demand goes down when income is lower
Definition of inferior goods
goods for which demand tends to fall when income rises
Definition of substitutes
-goods that can serve as replacements for one another: when the price of one increases, demand for the other goes up
Definition of perfect substitutes
-identical products
Definition of complements
-goods that go together
Definition of market demand
-the sum of all quantities of a good or service demanded per period by all the households buying in the market for that good or service (combination of individual demand curves)
Definition of quanitity supplied
-the amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period.
Definition of the Law of Supply
-the positive relationship between price and quanity of a good supplied.. increase in market price yields increase in quantity
3 things that a firms decision about what quantity to supply depends
-the price of athe good or service
-the cost of proudcing the product which depends on:
1.the price of required inputs
2.the technologies that can
be used to produce the product
-the price of related products
Definition of excess demand or shortage
-the condition that exists when quanitity demanded exceeds quantity supplied at the current price (price tends to rise) (EX: Auction)
Example of excess supply or surplus
-excess supply is cheap after christmas