Econ Exam 1

Front 1

economics

macroeconomics

microeconomics

Back 1

the study of choices given our scarce resources

study of the economy as a whole - inflation, employment, GDP

study of how households and firms make choices

Front 2

scarcity

Back 2

our wants exceed our resources available

Front 3

Key Economic Ideas

Back 3

1. people are rational
2. people respond to incentives
3. optimal decisions are made at the margin

Front 4

The Economic Problem

Back 4

1. what goods and services will be produced?
2. How will goods and services be produced?
3. Who will receive the goods and services produced?

Front 5

market

Back 5

a group of buyers and sellers of a good or service and an institution or arrangement by which they come together to trade

Front 6

trade off

Back 6

producing more of one good or service means producing less of another

Front 7

opportunity cost

Back 7

the highest value of what you give up when making a choice in order to gain something

Front 8

centrally planned economy

Back 8

government will dictate how resources will be allocated
-north korea

Front 9

market economy

Back 9

decisions of households and firms will allocate resources
-USA, Canada, Japan

Front 10

mixed economy

Back 10

interactions of households and firms in addition to government intervention
-social security, healthcare

Front 11

productive efficiency

Back 11

when a good or service is produced at the lowest possible cost

Front 12

allocative efficiency

Back 12

production is in accordance with consumer preferences

Front 13

positive analysis

Back 13

what is

Front 14

normative analysis

Back 14

what should be

Front 15

marginal

Back 15

extra or additional

Front 16

entrepreneur

Back 16

someone who uses the factors of production to make a product

Front 17

profit

Back 17

total revenue - total cost

Front 18

factors of production

Back 18

land, labor, capital, natural resources

Front 19

production possibilities frontier

Back 19

a curve showing the maximum attainable combination of goods and services that can be produced given available resources and current technology

Front 20

economic growth

Back 20

ppf shifting outward (right)

-increased labor force, increased capital stock, technological advance

Front 21

absolute advantage

Back 21

individual, firm or country is able to produce more of a good or service than its competitor given same amount of resources

Front 22

comparative advantage

Back 22

individual, firm or country has a lower opportunity cost

Front 23

product market

Back 23

market for goods and services households are demands

-firms are suppliers
-households are demanders

Front 24

factor market

Back 24

market for factors of production -

-households are suppliers
-firms are demanders

Front 25

free market

Back 25

govt doesn't control productions of goods and services

Front 26

perfectly competitive markets

Back 26

-many buyers and sellers
-firms selling identical products
-no barriers to entry/exit

Front 27

ceteris paribus

Back 27

all else equal - holding constant

Front 28

quantity demanded

Back 28

the amount of a good or service that the customer is willing and able to buy at a given price

Front 29

demand curve

Back 29

shows the relationship between price and quantity demanded

Front 30

law of demand

Back 30

rule that when everything is held constant, the quantity of a product demanded increases when price falls (vice versa)

Front 31

substitution effect

Back 31

change in quantity demanded is influenced by a price change in a substitute good.

Front 32

income effect

Back 32

change in quantity demanded of a good influenced by a change consumers income/purchasing power

Front 33

variables that shift demand

Back 33

income --- normal good, inferior good

price of a related good -- substitutes, compliments

tastes and preferences

population - increase in population = increase buyers = increase demand

expected future prices -- increase in future price = increase in demand now

Front 34

normal good

Back 34

a good for which demands increase as income increases

^ income = ^ demand

Front 35

inferior good

Back 35

a good for which demand decreases as income increases

^ income = v demand

Front 36

substitutes

Back 36

goods used for the same purpose

^ one price = ^demand for substitute

Front 37

compliments

Back 37

goods that go well together

^ price of one = v demand for other

Front 38

supply curve

Back 38

shows relationship between price and quantity supplied

Front 39

law of supply

Back 39

as price increases, quantity supplied increases

Front 40

variables that shift supply

Back 40

price of input --- increased price = less supply
technological change
price of substitutes -- increased price - increased supply
# of firms
expected future prices

Front 41

consumer surplus

Back 41

the difference between the highest price a consumer is willing and able to pay and what they actually pay

Front 42

producer surplus

Back 42

the difference between the lowest price a firm is willing and able to accept and the amount they actually receive

Front 43

economic surplus

Back 43

cs + ps
maximised when cs and ps are maximized

Front 44

deadweight loss

Back 44

loss to economic surplus

Front 45

price floors

Back 45

a minimum price that sellers may receive

surplus

Front 46

price ceiling

Back 46

maximum sellers may charge

shortage