Econ Exam 1 Spring 2008

Front 1

opportunity cost

Back 1

the best alternative that we forgo, or give up, when we make a choice or decisions, to find this you divide

Front 2

positive economics

Back 2

there are no judgments, simply what exists and how it works

Front 3

normative economics

Back 3

analyzes, evaluates as good or bad

Front 4

model

Back 4

formal statement or theory, simplified version of the world

Front 5

variable

Back 5

changes from time to time

Front 6

ceteris paribus

Back 6

all else equal, analyze the relationship between 2 variables while values of other variables are unchanged

Front 7

post hoc fallacy

Back 7

confusing association with causation, "after this, therefore because of this"

Front 8

fallacy of composition

Back 8

belief that what is true for a part is true for the whole

Front 9

ignoring secondary effects

Back 9

not anticipating unintended consequences of your decision or action

Front 10

marginalism

Back 10

analyzing additional or incremental costs

Front 11

sunk costs

Back 11

costs that cannot be avoided, should ignore these and focus on marginal costs

Front 12

arbitrage

Back 12

taking advantage of profit opportunities created by market inefficiencies

Front 13

absolute advantage

Back 13

producer has absolute advantage in the production if it can produce that product using fewer resources

Front 14

comparative advantage

Back 14

producer has comparative advantage if it can produce that product at a lower opportunity cost

Front 15

production possibility frontier (PPF)

Back 15

graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently

Front 16

marginal rate of transformation

Back 16

slope of the PPF, economic growth shifts PPF up and to the right

Front 17

consumer goods

Back 17

goods produced for present consumption

Front 18

capital goods

Back 18

goods used in the production of other goods and services

Front 19

investment

Back 19

process of using resources to produce new capital

Front 20

traditional economic system

Back 20

tradition alone determines nature

Front 21

command economic system

Back 21

central government sets targets, incomes, prices

Front 22

laissez faire or market economic system

Back 22

individual people and firms pursue their own

Front 23

what type of economic system does the US have?

Back 23

a mix of all three

Front 24

income

Back 24

amount that a household earns each year

Front 25

wealth

Back 25

amount that households have accumulated out of past income through saving or inheritance

Front 26

firm

Back 26

organization that transforms resources (inputs) to products (outputs)

Front 27

entrepreneur

Back 27

organizes and assumes risk of firm

Front 28

household

Back 28

consuming unit

Front 29

quantity demanded

Back 29

amount of a product that a household would buy in a given period if it could buy all it wanted at current market price

Front 30

demand curve

Back 30

how much of a given product a household would be willing to buy at different prices, *slopes downward

Front 31

law of demand

Back 31

negative relationship between price and quantity demanded, as price goes up, quantity demanded goes down (and opposite), if price changes the curve does not move, we just move to a different point

Front 32

substitutes

Back 32

goods that serve as replacements, if one goes up so does the other

Front 33

perfect substitutes

Back 33

identical products Ex. bottled water

Front 34

complimentary goods

Back 34

goods that "go together" Ex. pb&j

Front 35

shift of demand curve

Back 35

means new relationship between quantity demanded and price

Front 36

movement along the demand curve

Back 36

change in quantity brought by a change in price

Front 37

supply curve

Back 37

how much of a product a firm will sell at different prices

Front 38

law of supply

Back 38

positive relationship between price and quantity of a good supplied, market price goes up leads to quantity supplied going up (and opposite)

Front 39

shift of the supply curve

Back 39

change in technology shifts to the right, change in price of inputs shifts to the left, change in the price of alternative goods shifts to the left, means it is corresponding to a new relationship between quantity supplied of a good and price of that good

Front 40

movement along the supply curve

Back 40

change in quantity supplied brought about by a change in price

Front 41

equilibrium

Back 41

quantity supplied=quantity demanded, curves will be intersecting

Front 42

excess supply

Back 42

leads to a decrease in price

Front 43

excess demand

Back 43

leads to an increase in price

Front 44

price ceiling

Back 44

maximum price sellers may charge for a good (lead to shortages)

Front 45

price floor

Back 45

minimum price below which exchange is not permitted, Ex. minimum wage (lead to surpluses)

Front 46

usury law

Back 46

maximum on the interest rate that can be charged on loans

Front 47

elasticity

Back 47

general concept used to quantify the response in one variable when another variable changes

Front 48

price elasticity of demand

Back 48

the ratio of the percentage of change in quantity demanded to the percentage of change in price, measures the responsiveness of demand to changes in price, % change in quantity demanded/%change in price

Front 49

midpoint formula

Back 49

Q2-Q1/(Q1+Q2)/2 x 100%

Front 50

perfectly elastic demand

Back 50

demand in which quantity drops to zero at the slightest increase in price, Ed<-infinity

Front 51

elastic demand

Back 51

Ed<-1

Front 52

unitary elastic

Back 52

Ed=-1

Front 53

inelastic demand

Back 53

responds somewhat, but not a great deal, to changes in price (-1<Ed<0)

Front 54

perfectly inelastic demand

Back 54

demand in which quantity demanded does not respond at all to a change in price (Ed=0)

Front 55

total revenue

Back 55

TR=PxQ

Front 56

effects of price increase on a product with inelastic demand

Back 56

as price goes up and quantity goes down, total revenue goes up

Front 57

effects of price increase on a product with elastic demand

Back 57

as price goes up and quantity goes down, total revenue goes down

Front 58

effect of price cut on a product with elastic demand

Back 58

as price goes down and quantity goes up, total revenue goes up

Front 59

effect of price cut on a product with inelastic demand

Back 59

as price goes down and quantity goes up, total revenue goes down

Front 60

is demand elastic or inelastic?

Back 60

inelastic, more likely to become elastic over time

Front 61

income elasticity of demand

Back 61

measures responsiveness of demand to changes in income, positive for normal goods and negative for inferior goods

Front 62

cross-price elasticity of demand

Back 62

a measure of the response of the quantity of one good demanded to a change in the price of another good, if this is positive=substitutes, negative=compliments

Front 63

elasticity of supply

Back 63

a measure of the response of quantity of a good supplied to a change in price of that good

Front 64

elasticity of labor supply

Back 64

a measure of the response of labor supplied to a change in the price of labor

Front 65

median voter theory

Back 65

in a 2 person election, both candidates will move toward the center in an effort to capture the "median" or middle voter