Econ 51 Midterm 1

Front 1

Economics

Back 1

The study of the choices people, businesses, governments, and societies make as they cope with scarcity and incentives.

Front 2

Scarcity

Back 2

the inability to satisfy all of our wants

Front 3

Incentives

Back 3

Rewards or punishments that guide our actions

Front 4

microeconomics

Back 4

small scale economics at the level of individuals; the way choices interact in markets.

Front 5

macroeconomics

Back 5

performance of the national and global economy

Front 6

tradeoffs

Back 6

to get one thing, you have to give up another

Front 7

opportunity cost

Back 7

the highest valued alternative that you give up in making a decision

Front 8

production

Back 8

process by which inputs become outputs

Front 9

inputs

Back 9

land, labor, and capital

Front 10

human capital

Back 10

education, training (increase humans' contributions)

Front 11

production possibility frontier

Back 11

boundary between different combinations of goods and services that can be produced

Front 12

ceteris paribus

Back 12

everything else is held constant

Front 13

production efficiency

Back 13

one cannot produce more of one good without producing less of another

Front 14

production efficiency achieved (with regard to PPF)

Back 14

all points on PPF

Front 15

bowed out shape

Back 15

increasing opportunity cost due to specialization of some inputs

Front 16

Marginal benefit

Back 16

willingness to pay

Front 17

allocative efficiency

Back 17

Marginal benefit = marginal cost; can't produce more of one good without giving up more of some other good that's valued more highly.

Front 18

Economic growth

Back 18

PPF shifts out, capability to produce more goods

Front 19

perfect competition

Back 19

many buyers and sellers, so no single buyer or seller can influence a good's price

Front 20

demand

Back 20

one wants, can afford, and plans to buy a good

Front 21

law of demand

Back 21

the higher the price of a good, the smaller is the quantity demanded

Front 22

substitution effect

Back 22

As price increases, so does a good's price relative to other goods. Thus, substitutes are purchased instead.

Front 23

Income effect

Back 23

As price increases, so does a good's price relative to one's income. People are not willing to spend a large portion of their income, so demand decreases.

Front 24

prices of substitutes in consumption

Back 24

P(sub) increases -> Quantity of good demanded increases

Front 25

prices of complements in consumption

Back 25

P(comp) increases -> quantity of good demanded decreases

Front 26

Normal good

Back 26

As income increases, demand increases (income elasticity of demand is positive)

Front 27

Inferior good

Back 27

As income increases, demand decreases (income elasticity of demand is negative)

Front 28

Expectation of Future Income

Back 28

If income will increase, demand increases today

Front 29

Population's effect

Back 29

An increase in population increases demand.

Front 30

Preferences

Back 30

the value someone places on a good or service

Front 31

Supply

Back 31

Planning and able to produce a product

Front 32

Law of Supply

Back 32

Ceteris paribus, as price increases, quantity supplied increases.

Front 33

Price of Inputs

Back 33

Input price increases, supply decreases

Front 34

Substitute in production

Back 34

produced using same inputs. As P(sub) increases, supply of good decreases

Front 35

Complement in production

Back 35

produced together. As P(comp) increases, supply of good increases.