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57 Cards in this Set

  • Front
  • Back
What is microeconomics?
Microeconomics focuses on decision making by individuals, businesses, industries, and governments.
What is macroeconomics?
Macroeconomics is concerned about the broader issues in the economy such as inflation, unemployment, and national output of goods and services.
What is Ceteris paribus?
Assumption used in economics where other relevant factors or variable are held constant.
What is efficiency?
How well resources are used and allocated. Do people get the goods and services they want at the lowest possible resource cost? This is the chief focus of efficiency.
What is equity?
The fairness of various issues and policies.
What is scarcity?
Our unlimited wants clash with limited resources, leading to scarcity. Everyone faces scarcity (rich or poor) because, at a minimum, our time is limited on earth. Economics focuses on the allocation of scarce resources to satisfy unlimited wants.
What are opportunity costs?
The next best alternatives; what you give up to do something or purchase something.
What is production?
The process of converting resources (factors of production) -- land, labor, capital, and entrepreneurial ability -- into goods and services.
What are resources?
Productive resources include land, labor, capital, and entrepreneurial ability.
What is land?
Includes natural resources such as mineral deposits, oil, natural gas, water, and land in the usual sense of the word. The payment to land as a resources called rents.
What is labor?
Includes the mental and physical talents of individuals that are used to produce products and services. Labor is paid wages.
What is capital?
Includes manufactured products such as welding machines, computers and cellular phones that are used to produce other goods and services. The payment to capital is referred to as interest.
What are entrepreneurs?
Entrepreneurs combine land, labor and capital to produce goods and services. They absorb the risk of being in business, including ther risk of bankruptcy and other liabilities associated with doing business. Entrepreneurs receive profits fort his effort.
What is production efficiency?
Goods and services are produced at their lowest resource (opportunity) cost.
What is allocative efficiency?
The mix of goods and services produced are just what individuals in society desire.
What is the Production Possibilities Frontier (PPF)?
Shows the combinations of two goods that are possible for a society to produce at full employment. Points on or inside the PPF are feasible, and those outside of the frontier are unattainable.
What is an opportunity cost (Chapter 2)?
The cost paid for one product in terms of the output of another product that must be foregone.
What is the absolute advantage?
One country can produce more of a good than another country.
What is the comparative advantage?
One country has a lower opportunity cost of producing a good than another country.
What are markets?
Institutions that bring buyers and sellers together so they can interact and transact with each other.
What is a price system?
A name given to the market economy because prices provide considerable information to both buyers and sellers.
What is demand?
The maximum amount of a product that buyers are willing and able to purchase over some time period at various prices, holding all other relevant factors constant (ceteris paribus).
What is the law of demand?
Holding all other relevant factors constant, as price increases, quantity demanded falls, and as a price decreases, quantity demanded rises.
What is the demand curve?
Demand schedule information translated to a graph.
What is a horizontal summation?
Market demand and supply curves are found by adding together how many units of the product will be purchased or supplied at each price.
What are the determinants of demand?
Other nonprice factors that affect demand including tastes and preferences, income, prices of related goods, number of buyers, and expectations.
What are normal goods?
A good where an increase in income results in rising demand.
What are inferior goods?
A good where an increase in income results in declining demand.
What are substitute goods?
Goods consumers will substitute for one another depending on their relative prices.
What are complementary goods?
Goods that are typically consumed together.
What is a change in demand?
Occurs when one or more of the determinants of demand changes, shown as a shift in the entire demand curve.
What is a change in the quantity demanded?
Occurs when the price of the product changes, and is shown as a movement along an existing demand curve.
What is supply?
The maximum amount of a product that sellers are willing and able to provide for sale over some time period at various prices, holding all other relevant factors constant (ceteris paribus).
What is the law of supply?
Holding all other relevant factors constant, as price increases, quantity supplied will rise, and as price declines, quantity supplied will fall.
What is the supply curve?
Supply schedule information translated to a graph
What are the determinants of supply?
Other nonprice factors that affect supply including production technology, costs of resources, prices of other commodities, expectations, number of sellers, and taxes and subsidies.
What is a change in supply?
Occurs when one or more of the determinants of supply changes, shown as a shift in the entire supply curve.
What is a change in the quantity supplied?
Occurs when the price of the product changes, and is shown as a movement along an existing supply curve.
What is equilibrium?
Market forces are in balance where teh quantities demanded by consumers just equal quantities supplied by producers.
What is equilibrium price?
Market equilibrium price is the price that results when quantity demanded is just equal to quantity supplied.
What is equilibrium quantity?
Market equilibrium quantity is the output that results when quantity demanded is just equal to quantity supplied.
When does a surplus occur?
When the price is above market equilibrium, and quantity supplied exceeds quantity demanded.
When does a shortage occur?
When the price is below market equilibrium, and quantity demanded exceeds quantity supplied.
What are property rights?
The clear delineation of ownership of property backed by government enforcement.
What is a consumer surplus?
The difference between market price and what consumers (as individuals or the market) would be willing to pay. It is equal to the area above market price and below the demand curve.
What is a produce surplus?
The difference between market price and the price that firms would be willing supply the product. It is equal to the area below market price and above the supply curve.
What is asymmetric information?
Occurs when one party to a transaction has significantly better information that another party.
What is adverse selection?
Occurs when products of different qualities are sold at the same price because of asymmetric information.
What is a moral hazard?
Asymmetric information problem that occurs when an insurance policy or some other arrangement changes the economic incentives and leads to a change in behavior.
What are public goods?
Goods that, once provided, no one person can be excluded from consuming (nonexclusion), and one person's consumption does not diminish the benefit to others from consuming the good (nonrivalry).
What is a free rider?
When a public good is provided, consumers cannot by excluded from enjoying the product, so some consume the product without paying.
What are common property resources?
Resources that are owned by the community at large and therefore tend to be overexploited because individuals have little incentive to use them in a sustainable fashion.
What is an external cost?
Occurs when a transaction between two parties has an impact on a third party not involved with the transaction. External costs are negative such as pollution or congestion. The market provides too much of the product with negative externalities at too low a cost.
What is an external benefit?
Positive externalities such as education and vaccinations. Private markets provide too little at too high a price of goods with external benefits.
What is a price ceiling?
A government-set maximum price that can be charged for a product or service. When the price ceiling is set below equilibrium, it leads to shortages (EX. rent control).
What is a price floor?
A government-set minimum price that can be charged for a product or service. If the price floor is set above equilibrium price, it leads to surpluses. (EX. minimum wages).
What is deadweight loss?
The loss in consumer and producer surplus due to inefficiency because some transactions cannot be made and therefor their value to society is lost.