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76 Cards in this Set
- Front
- Back
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scarcity
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The situation in which unlimited wants exceed the limited resources available to fulfill those wants.
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economics
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The study of the choices people make to attain their goals, given their scarce resources.
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economic model
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A simplified version of reality used to analyze real world economic situations.
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market
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A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
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marginal analysis
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Analysis that involves comparing marginal benefits and marginal costs.
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trade-off
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The idea that because of scarcity, producing more of one good or service means producing less of another good or service.
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opportunity cost
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The highest valued alternative that must be given up to engage in an activity.
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centrally planned economy
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An economy in which the government decides how economic resources will be allocated.
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market economy
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An economy in which the decisions of households and firms interacting in markets allocate economic resources.
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mixed economy
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An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
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productive efficiency
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The situation in which a good or service is produced at the lowest possible cost.
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allocative efficiency
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A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.
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voluntary exchange
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The situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.
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equity
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The fair distribution of economic benefits.
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economic variable
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Something measurable that can have different values, such as the wages of software programmers.
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positive analysis
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Analysis concerned with what is.
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normative analysis
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Analysis concerned with what ought to be.
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microeconomics
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The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
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macroeconomics
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The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
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technology
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A firm's technology is the processes it uses to produce goods and services. In the economic sense, a firm's technology depends on many factors, such as the skill of its managers, the training of its workers, and the speed and efficiency of its machinery and equipment.
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productive possibilities frontier (PPF)
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A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
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economic growth
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The ability of the economy to produce increasing quantities of goods and services.
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trade
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The act of buying or selling.
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absolute advantage
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The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.
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comparative advantage
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The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
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product markets
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Markets for goods - such as computers - and services - such as medical treatment.
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factor markets
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Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.
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factors of production
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The inputs used to make goods and services.
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circular-flow diagram
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A model that illustrates how participants in markets are linked. Through product markets, firms trade goods and services with households in exchange for money. Through factor markets, households trade factors of production (labor, capital, etc.) in exchange for wages.
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free market
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A market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed.
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entrepreneur
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Someone who operates a business, bringing together the factors of production - labor, capital, and natural resources - to produce goods and services.
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property rights
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The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
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perfectly competitive market
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A market that meets the conditions of: 1) many buyers and sellers, 2) all firms selling identical products, and 3) no barriers to new firms entering the market
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demand schedule
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A table showing the relationship between the price of a product and the quantity of the product demanded.
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quantity demanded
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The amount of a good or service that a consumer is willing and able to purchase at a given price.
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demand curve
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A curve that shows the relationship between the price of a product and the quantity of the product demanded.
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market demand
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The demand by all the consumers of a given good or service.
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law of demand
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The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.
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substitution effect
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The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes.
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income effect
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The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power.
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ceteris paribus (all else equal)
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The requirement that when analyzing the relationship between two variables - such as price and quantity demanded - other variables must be held constant.
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normal good
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A good for which the demand increases as income rises and decreases as income falls.
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inferior good
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A good for which the demand increases as income falls and decreases as income rises.
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substitutes
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Goods and services that can be used for the same purpose.
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complements
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Goods and services that are used together.
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demographics
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The characteristics of a population with respect to age, race, and gender.
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quantity supplied
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The amount of a good or service that a firm is willing and able to supply at a given price.
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supply schedule
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A table that shows the relationship between the price of a product and the quantity of the product supplied.
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supply curve
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A curve that shows the relationship between the price of a product and the quantity of the product supplied.
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law of supply
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The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.
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technological change
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A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs.
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market equilibrium
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A situation in which quantity demanded equals quantity supplied.
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competitive market equilibrium
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A market equilibrium with many buyers and many sellers.
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surplus
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A situation in which the quantity supplied is greater than the quantity demanded.
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shortage
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A situation in which the quantity demanded is greater than the quantity supplied.
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elasticity
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A measure of how much one economic variable responds to changes in another economic variable.
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price elasticity of demand
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The responsiveness of the quantity demanded to a change in price:
(% change in Q demanded) / (% change in price) |
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elastic demand
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Demand is elastic when the price elasticity is greater than 1 in absolute value.
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inelastic demand
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Demand is inelastic when the price elasticity is less than 1 in absolute value.
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unit-elastic demand
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Demand is unit-elastic when the price elasticity is 1 in absolute value.
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perfectly inelastic demand
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The case where the quantity demanded is completely unresponsive to price, and price elasticity of demand equals 0.
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perfectly elastic demand
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The case where the quantity demanded is infinitely responsive to price, and the price elasticity of demand equals infinity.
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total revenue
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The total amount of funds received by a seller of a good or service, calculated by multiplying price per unit by the number of units sold.
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cross-price elasticity of demand
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(% change in Q demanded of good A) / (% change in price of good B)
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income elasticity of demand
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A measure of the responsiveness of quantity demanded to changes in income:
(% change in Q demanded) / (% change in income) |
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price elasticity of supply
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The responsiveness of the quantity supplied to a change in price:
(% change in Q supplied) / (% change in price) |
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utility
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The enjoyment or satisfaction people receive from consuming goods and services.
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marginal utility (MU)
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The change in total utility a person receives from consuming one additional unit of a good or service.
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law of diminishing marginal utility
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The principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time.
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budget constraint
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The limited amount of income available to consumers to spend on goods and services.
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income effect
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The change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding all other factors constant.
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substitution effect
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The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
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network externality
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The situation where the usefulness of a product increases with the number of consumers who use it.
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behavioral economics
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The study of situations in which people make choices that do not appear to be economically rational.
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endowment effect
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The tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it.
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sunk cost
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A cost that has already been paid and cannot be recovered.
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