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44 Cards in this Set
- Front
- Back
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resources
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land
labor capital entrepreneurship time |
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rationing device
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created by scarcity and guides choices
-prices are the primary rationing device |
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invisible hand
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-prices help direct scarce resources through supply/demand
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adam smith
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wrote 'an inquiry inthe the nature of causes of the wealth of nations'
-created the invisible hand theory -no regulation necessary |
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rules of the game
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-encourage effective use of existing scarce resources
-spark innovation -develop new talents and skills |
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price limit will lead to a
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shortage
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scarce goods require
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sacrifice
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the myth of material wealth
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-wealth isnt necessarily cash
-who is more wealthy? water owner or gold owner? |
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efficiency=
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output/input
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voluntary exchange
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-change of unequal values
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production possibilities frontier
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max combinations of products that can be produced given a set of resources
-nations can get passed their PPF by trading |
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if PPF is a straight line, we have
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constant opportunity costs
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if PPF is concave, we have
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increasing opportunity costs
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why does everyone gain in specialization?
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there is less competition
ex. stout vs. lager |
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law of comparative advantage
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specialization
-less competition |
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transaction costs
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costs of arranging contracts and agreements
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demand curve
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illustrates a good that consumers purchase at various prices
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quantity demand
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taking a price and finding the corresponding demand
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law of demand
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inverse relationship b/w price and quantity demand(not just demand)
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demand vs. quantity demand
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demand=dependent on something other than price
quantity demand= dependent solely on price |
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influences that can change demand
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# of customers
change in customer taste change in income change in price of substitute change in expected future price |
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inflation equation
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present value=amount recieved in the future/(1+inflation)
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price elasticity of demand
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-measures consumer responsiveness to price changes
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price elasticity equation
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elasticity demand=% of quantity demanded/% of change in price
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price elasticity demand influenced by
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time
availability of substitutes proportion of one's budget spent on a good |
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miracle of the market
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how specialists globally manage to cooperate together to produce goals
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role of gov't
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-enforce property rights
-enforce contracts |
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equilibrium price
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the quantity that sellers are willing and able to supply is equal to the quantity consumers are willing and able to buy
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clearing price
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equilibrium price
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advantages of money
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-lowers transaction costs
-acceptability -divisible -provides signals quickly -easily adjusted |
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price regulation gas example
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-gas was set lower
-quantity demand would increase -suppliers would have cut output -shortage would result |
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non-monetary cost
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cost that is not fixed
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signals
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-secure cooperation in the economy
ex. changing money prices |
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price ceiling generates
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shortages
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price floor
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-minimum price
ex. minimum wage |
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sellers like us to that price increases are from
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rising costs, not demand
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profit=
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revenue-costs
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profit is AKA
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net revenue
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accounting profit
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measures only explicit costs
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economic profit
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includes both explicit and implicit costs
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sunk cost
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costs from the past that are no longer relevant
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marginal cost
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the change in the existing situation that will ensue
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marginal opportunity cost
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the full name of a cost relevant to decision making
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price elasticity of supply=
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% change in quantity supplied/% change in price
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