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115 Cards in this Set

  • Front
  • Back
scarcity
the shortage that exists when less of something is available than is wanted at a zero price
economic good
any item that is scarce
free good
a good for which there is no scarcity
economic bad
any item for which we would pay to have less
resources, factors of production, or inputs
goods used to produce other goods
3 factors of production
-land
-labor
-capita
land (factor of production)
all natural resources, such as minerals, timber, and water, as well as the land itself
labor (factor of production)
the physical and inteellectual services of the people, including the training, education, and abilities of the individuals in a society
capital (factor of production)
products such as machinery and equipment that are used in production
what type of capital do owners of land recieve?
owners of land recieve rent
what type of capital do people who provide labor services recieve?
people who provide labor services are paid wages
what type of capital do owners of capital recieve?
owners of capital recieve interest
rational self-interest
the means by which people choose the options that give them the greatest amount of satisfaction (the foundation of why people make choices)
blanket definition of economics
the study of how people choose to use their scarce resources to attempt to satisfy their unlimited wants
positive analysis
analysis of WHAT IS
normative analysis
analysis of what OUGHT TO BE
fallacy of composition
the mistaken assumption that what applies in the case of one applies to the case of many
association as causation
the mistaken assumption that because two events seem to occur together, one causes the other
microeconomics
the study of economics at the level of the individual
macroeconomics
the study of the economy as a whole
independent variable
a variable whose value does not depend on the values of other variables
dependent variable
a variable whose value depends on the value of hte independent variable
direct, or positive relationship
the relationship that exists when the values of related variables move in the same direction
inverse, or negative, relationship
the relationship that exists when the values of related variables move in opposite directions
on what axis is price listed?
-vertical axis
on what axis is quantity listed?
-horizontal axis
slope
the steepness of a curve, measured as the ratio of the rise to the run
3 types of graphs
-line graph
-bar graph
-pie chart
what quadrant of the graph is mostly used in dealing with economics and why?
the upper right quadrant is often used in economics, because most economics deals with positive numbers
opportunity costs
the highest-valued alternative that must be forgone when a choice is made
rule of specialization
individuals specialize in the activity in which their opportunity costs are lowest
tradeoff
the giving up of one good or activity in order to obtain some other good or activity
production possibilities curve (PPC)
a graphical representation showing all possible combinations of quantities of goods and services that can be produced using the existing resources fully and efficiently
in dealing with the PPC, what happens when a point is beyond the curve?
it is an impossible combination given current technology and resources
in dealing with the PPC, what happens when a point is inside the curve?
it is a case of underutilization
in dealing with the PPC, how can we shift the curve out?
change the conditions... in order to have more quantity and higher price, we can do things like develope new technology
marginal cost or marginal opportunity cost
the amount of one good or service that must be given up to obtain one additional unit of another good or service, no matter how many units are being produced
gains from trade
the difference between what can be produced and consumed without specialization and with specialization and trade
comparative advantage
the ability to produce a good or service at a lower opportunity cost than someone else
private property rights
the right of ownership
what does private property rights have to do with trade?
private property rights are necessary for voluntary trade to develop
3 catagories of trade
-voluntary trade enables people to get more than they could get by doing everything themselves (gain from trade)
-specialization and trade enable those involved to acquire more than they could if they did not specialize and engage in trade
-private property rights are necessary for voluntary trade to occur
4 ways that scarce goods and resources can be allocated
-first come first serve
-prices
-government
-random
market
a place or service that enables buyers and sellers to exchange goods and services
barter
the direct exchange of goods and services without the use of money
double coincidence of wants
the situation that exists when A has what B wants and B has what A wants
demand
the amount of a product that people are willing and able to purchase at each possible price during a given period of time, everything else held constant
quantity demanded
the amount of a product that people are willing and able to purchase at a specific price
5 points to the law of demand:
-the quantity of a well-defined good or service that
-people are willing and able to purchase
-during a particular period of time
-decreases as the price of that good or service rises and increases as the price falls,
-everything else held constant
determinants of demand
factors other than the price of athe good that influence demand
5 determinants of demand
-income
-tastes
-prices of related goods and services
-expectations
-number of buyers
demand schedule
a table or list of prices and the corresponding quantities dmeand for a particular good or service
demand curve
a graph of a demand schedule that measures price on the vertical axis and quantity demanded on the horizontal axis
normal goods
goods for which demand increases and income increases
inferior goods
goods for which demand decreases as income increases
substitute goods
goods that can be used in place
complementary goods
goods that are used together; as the price of one rises, the demand for the other falls
market demand
the sum of all individual demands
supply
the amount of a good or service that producers are willing and able to offer for sale at each possible price during a period of time, everything else held constant
quantity supplied
the amount that sellers are willing and able to offer at a given price during a particular period of time, everything else held constant
5 points to the law of supple
-the quantity of a well-defined good or service that
-producers are willing and able to offer for sale
-during a particular period of time
-increases as the price of the good or service increases and decreases as the price decreases
-everything else held constant
supply schedule
a table or list of prices and the corresponding quantities supplied of a particular good or service
supply curve
a graph of a supply schedule that measures price on the vertical axis and quantity supplied on the horizontal axis
productivity
the quantity of output produced per unit of resource
how is market supply is found?
by adding together the quantities supplied at each price by every producer in the market
equilibrium
the price and quantity demanded and quantity supplied are equal
disequilibrium
prices at which quantity demanded and quantity supplied are not equal at a particular price
surplus
a quantity supplied that is larger than the quantity demanded at a given price; it occurs whenever the price is greater than the equalibrium price
shortage
a quantity supplied that is smaller than the quantity demanded at a given price; it occurs whenever the price is less than the equilibrium price
exhange rate
the rate at which monies of different countries are exchanged
price floor
a situtation which the price is not allowed to decrease below a certain level
price ceiling
a situation in which the price is not allowed to rise above a certain level
consumer sovereignty
the authority of consumers to determine wht is produced through their purchases of goods and services
private sector
households, businesses, and the international sector
public sector
the government
household
one or more persons who occupy a unit of housing
consumption
household spending
business firm
a business organization controlled by a single management
sole proprietorship
a business owned by one person who recieves all the profits and its responsible for all the debts incurred by the business
partnership
a business with two or more owners who share the firms profits and losses
corporation
a legal entity owned by shareholders who liability for the firms losses is limited to the value of the stock they own
multinational business
a firm that owns and operates producing units in foreign countries
5 types of businesses
-business firms
-sole proprietorship
-partnership
-corporation
-multinational business
investment
spending on capital goods to be used in producing goods and services
3 ways business can be organized
-sole propietorships
-partnerships
-corporations
imports
products that a country buys from other countries
exports
products that a country sells to other countries
trade surplus
the situtation that exists when imports are less than exports
trade deficit
the situation that exists when imports exceeds exports
net exports
the difference betwen the value of exports and the value of imports
formula for net exports
net exports = exports - imports
financial intermediaries
institutions that accept deposits from savers and make loans to borrowers
circular flow diagram
a model showing the flow of output and income from one sector of the economy to another (also shows that the value of output is equal to income)
economic efficiency
a situation thin which no one in societ can be made better off without making someone else worse off
technical efficiency
producing at a point on the PPC
market imperfection
a lack of efficiency that results from imperfect information in the marketplace
externalities
the costs or benifits of a transaction that are borne by someone who is not directly involved in the transaction
public good
a good whose consumption by one person does not diminish the quantity or quality available for others
free ride
the enjoyment of the benefits of a good by a producer or consumer without having to pay for the good
monopoly
a situation which there is only one producer of a good
business cycles
fluctuations in the economy between growth and stagnation
rent seeking
the use of resources simply to transfer wealth from one group to another without increasing production or total wealth
public choice
the study if how government actions result from the self-interested behaviors of voters and politicians
why does the government provide public goods?
to avoid the free rider problem that would occur if private firms provided the goods
monetary policy
policy directed toward the control of money and credit
federal reserve
the central bank of the united states
fiscal policy
policy directed toward government spending and taxation
transfer payment
income transferred by the government from a citizen who is eaning income to another citizen
budget surplus
when excess that results when government spending is less than tax revenue
budget deficit
the shortage that results when government spending is greater than tax revenue
centrally planned economy
n economic system in which determines what goods and services are produced and the prices at which they are sold
the 4 microeconomic functions of government
-correcting externalities
-redistributing income from high income groups to lower income groups
-inforcing a competitive economy
-providing public goods
role of the ferderal reserve in terms of economics
to conduct monetary policy
role of congess and the president in terms of economics
to formulate fiscal policy
what is the macroeconomic function of government?
to control the economy through monetary and fiscal policy