Basic Economics Test 1 Vocab

Front 1

the decision by an individual of what to do, which necessarily involves a decision of what not to do.

Back 1

Individual Choice

Front 2

anything, such as land, labor, and capital, that can be used to produce something else; includes natural resources and human resources.

Back 2

Resource

Front 3

in short supply; a resource is scarce when there is not enough of the resource available to satisfy all the various ways a society wants to use it.

Back 3

Scarce

Front 4

the real cost of an item; what you must give up in order to get it.

Back 4

Opportunity Cost

Front 5

a comparison of costs and benefits of doing something.

Back 5

Trade-off

Front 6

a decision made at the "margin" of an activity to do a bit more or a bit less of that activity.

Back 6

Marginal decisions

Front 7

a study of marginal decisions

Back 7

Marginal analysis

Front 8

anything that offers rewards to people who change their behavior.

Back 8

Incentive

Front 9

my choices affect your choices, and vice versa; a feature of most economic situations. The results of this interaction are often quite different from what the individuals intend.

Back 9

Interaction

Front 10

the practice, in a market economy, in which individuals provide goods and services to others and receive goods and services in return.

Back 10

Trade

Front 11

gains achieved by dividing tasks and trading; in this way people can get more of what they want through trade than they could if they tried to be self-sufficient.

Back 11

Gains from trade

Front 12

The situation in which each person specializes in the task that he or she is good at performing.

Back 12

Specialization

Front 13

An economic situation in which no individual would be better off doing something different.

Also - Quantity Supplied = Quantity Demanded

Back 13

Equilibrium

Front 14

Description of a market or economy that takes all opportunities to make some people better off without making other people worse off.

Back 14

Efficient

Front 15

Fairness; everyone gets his or her fair share. Since people can disagree about what is "fair." it is not as well defined a concept as efficiency.

Back 15

Equity

Front 16

A simplified representation of a real situation that is used to better understand real-life situations.

Back 16

Model

Front 17

In the development of a model, the assumption that all relevant factors except the one under study remain unchanged.

Back 17

Other things equal assumption

Front 18

A model that illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity produced of the other.

Back 18

Production possibility frontier.

Front 19

The resources used to produce goods and services. Labor and capital are examples of this.

Back 19

Factors of production.

Front 20

The technical means for producing goods and services.

Back 20

Technology

Front 21

The advantage conferred on an individual or country in producing a good or service if the opportunity cost of producing the good or service is lower for that individual or country than for other producers.

Back 21

Comparative Advantage

Front 22

The advantage conferred on an individual or country in an activity if the individual or country can do it better than others. A country with an absolute advantage can produce more output per worker than other countries.

Back 22

Absolute Advantage

Front 23

The direct exchange of goods or services for other goods or services without the use of money.

Back 23

Barter

Front 24

A diagram that represents the transactions in an economy by two kinds of flows around a circle: flows of physical things such as goods or labor in one direction and flows of money to pay for these physical things in the opposite direction.

Back 24

Circular-flow diagram

Front 25

A person or a group of people that share their income.

Back 25

Household

Front 26

An organization that produces goods and services for sale.

Back 26

Firm

Front 27

Markets in which firms sell goods and services that they produce to households.

Back 27

Markets for goods and services

Front 28

Markets in which firms buy the resources they need to produce goods and services.

Back 28

Factor Marktets

Front 29

The way in which total income is divided among the owners of the various factors of production.

Back 29

Income distribution

Front 30

The branch of economic analysis that describes the way the economy actually works.

Back 30

Positive Economics

Front 31

The branch of economic analysis that makes prescriptions about the way the economy should work.

Back 31

Normative Economics

Front 32

A simple prediction of the future.

Back 32

Forecast

Front 33

A market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold.

Back 33

Competitive market

Front 34

A model of how a competitive market behaves

Back 34

Supply and Demand model

Front 35

A list or table showing how much of a good or service consumers will want to buy at different prices.

Back 35

Demand schedule

Front 36

The actual amount of a good or service consumers are willing to buy at some specific price.

Back 36

Quantity demanded

Front 37

A graphical representation of the demand schedule, showing the relationship between quantity demanded and price.

Back 37

Demand curve

Front 38

The principle that a higher price for a good or service, other things equal, leads people to demand a smaller quantity of that good or service.

Back 38

Law of Demand

Front 39

A change in the quantity demanded at any given price, represented graphically by the change of the original demand curve to a new position, denoted by a new demand curve.

Back 39

Shift of the demand curve

Front 40

A change in the quantity demanded of a good that results from a change in the price of that good.

Back 40

Movement along the demand curve

Front 41

Pairs of goods for which a rise in the price of one of the goods leads to an increase in demand for the other good.

Back 41

Substitutes

Front 42

Pairs of goods for which a rise in the price of one good leads to a decrease in the demand for the other good.

Back 42

Complements

Front 43

A good for which a rise in income increases the demand for that good.

Back 43

Normal Good

Front 44

A good for which a rise in income decreases the demand for the good.

Back 44

Inferior Good

Front 45

A graphical representation of the relationship between quantity demanded and price for an individual consumer.

Back 45

Individual Demand Curve

Front 46

The actual amount of a good or service producers are willing to sell at some specific price.

Back 46

Quantity Supplied

Front 47

A list or table showing how much of a good or service producers will supply at different prices.

Back 47

Supply Schedule

Front 48

A graphical representation of the supply schedule, showing the relationship between quantity supplied and price.

Back 48

Supply Curve

Front 49

A change in the quantity supplied of a good or service at any given price, represented graphically by the change in the original supply curve to a new position denoted by a new supply curve.

Back 49

Shift of the Supply Curve

Front 50

A change in the quantity supplied of a good that results from a change in the price of that good.

Back 50

Movement Along the Supply Curve

Front 51

A good or service used to produce another good or service.

Back 51

Input

Front 52

A graphical representation of the relationship between quantity supplied and price for an individual producer.

Back 52

Individual Supply Curve

Front 53

The price at which the market is in equilibrium, that is, the quantity of a good or service demanded equals the quantity of that good or service supplied. Also referred to as the market-clearing price.

Back 53

Equilibrium price

Front 54

The quantity of a good or service bought and sold at the equilibrium price.

Back 54

Equilibrium Quantity

Front 55

The price at which the market is in equilibrium, that is, the quantity of a good or service demanded equals the quantity of that good or service supplied. Also referred to as the equilibrium price.

Back 55

Market-clearing price

Front 56

The excess of a good or service that occurs when the quantity supplied exceeds the quantity demanded; surpluses occur when the price is above the equilibrium price.

Back 56

Surplus

Front 57

The insufficiency of a good or service that occurs when the quantity demanded exceeds the quantity supplied; shortages occur when the price is below the equilibrium price.

Back 57

Shortage

Front 58

The maximum price a consumer is prepared to pay for a good.

Back 58

Willingness to pay

Front 59

The net gain to an individual buyer from the purchase of a good; equal to the difference between the buyer's willingness to pay and the price paid.

Back 59

Individual Consumer Surplus

Front 60

the sum of the individual consumer surpluses of all buyers of a good in a market.

Back 60

Total Consumer Surplus

Front 61

A term often used to refer both to individual consumer surplus and to total consumer surplus.

Back 61

Consumer Surplus

Front 62

(of seller) the lowest price at which a seller is willing to sell a good.

Back 62

Cost

Front 63

The net gain to an individual seller from selling a good; equal to the difference between the price received and the seller's cost.

Back 63

Individual Producer Surplus

Front 64

The sum of the individual consumer surpluses of all buyers of a good in a market.

Back 64

Total Producer Surplus

Front 65

The total net gain to consumers and producers from trading in a market; the sum of the producer surplus and the consumer surplus.

Back 65

Total Surplus

Front 66

The rights of owners of valuable items, whether resources or goods, to dispose of those items as they choose.

Back 66

Property rights

Front 67

any piece of information that helps people make better economic decisions.

Back 67

Economic Signal

Front 68

describes a market or economy in which there are missed opportunities: some people could be made better off without making other people worse off.

Back 68

Inefficient

Front 69

The failure of a market to be efficient.

Back 69

Market Failure

Front 70

Legal restrictions on how high or low a market price may go.

Back 70

Price Controls

Front 71

a maximum price sellers are allowed to charge for a good or service; a form of price control.

Back 71

Price Ceiling

Front 72

a minimum price buyers are required to pay for a good or service; a form of price control.

Back 72

Price Floor

Front 73

The loss in total surplus that occurs whenever an action or a policy reduces the quantity transacted below the efficient market equilibrium quantity.

Back 73

Deadweight loss

Front 74

A form of inefficiency in which some people who want the good badly and are willing to pay a high price don't get it, and some who care relatively little about the good and are only willing to pay a low price do get it; often a result of a price ceiling.

Back 74

Inefficient Allocation to consumers

Front 75

A form of inefficiency in which people expend money, effort, and time to cope with the shortages caused by a price ceiling.

Back 75

Wasted resources

Front 76

A form of inefficiency in which sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price; often a result of a price ceiling.

Back 76

Inefficiently low quality

Front 77

A market in which goods or services are bought and sold illegally, either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling.

Back 77

Black Market

Front 78

A legal floor on the wage rate. The wage rate is the market price of labor.

Back 78

Minimum Wage

Front 79

A form of inefficiency in which sellers who would be willing to sell a good at the lowest price are not always those who actually manage to sell it; often the result of a price floor.

Back 79

Inefficient Allocation of Sales among sellers

Front 80

A form of inefficiency in which sellers offer high-quality goods at a high price even though buyers would prefer a lower quality at a lower price; often the result of a price floor.

Back 80

Inefficiently high quality

Front 81

The upper limit, set by the government, on the quantity of some good that can be bought or sold; also referred to as a quota.

Back 81

Quantity Control

Front 82

An upper limit, set by the government, on the quantity of some good that can be bought or sold; also referred to as quantity control.

Back 82

Quota

Front 83

The total amount of a good under a quota or quantity control that can be legally transacted.

Back 83

Quota Limit

Front 84

The right, conferred by the government or an owner, to supply a good.

Back 84

License

Front 85

The price of a given quantity at which consumers will demand that quantity.

Back 85

Demand Price

Front 86

The price of a given quantity at which producers will supply that quantity.

Back 86

Supply Price

Front 87

The difference between the demand price of the quantity transacted and the supply price of the quantity transacted for a good when the supply of the good is legally restricted. Often created by a quantity control.

Back 87

Wedge

Front 88

The difference between the demand price and the supply price at the quota limit; this difference, the earnings that accrue to the license-holder, is equal to the market price of the license when the license is traded.

Back 88

Quota Rent