Econ Test Ch 1-6

Front 1

economics

Back 1

study of how individuals ans societies choose to use scarce resources that nature and previous generations have provided

Front 2

opportunity cost

Back 2

the best alternative we forgo or give up when we make a choice or decision

Front 3

scarce

Back 3

limited

Front 4

marginalism

Back 4

the process of analyzing the additional or incremental costs or benefits aring from a choice or decision

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sunk cost

Back 5

costs that cannot be avoided, regardless of what is done in the future, because they have already been incurred

Front 6

efficient market

Back 6

a market in which profit opportunities are eliminated almost instantaneously

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why study economics:

informs us about....
tells use about

Back 7

personal, business decisions

historical evolution
global affairs

udnerstand society
global affairs
be an informed voter

Front 8

economics addresses the 3 basic questions of any society

Back 8

what gets produced
how it gets produced
why it gets produced

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industrail revolution

Back 9

period in england during the lat, early 18th, 19th centuries in which manufacturing technologies and imrpvoed transportation gave rise to the modern factory system and a massive movement of the population from the countryside to the cities

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microeconomics

Back 10

the branch of economics that examines the functioning of individual industries and the behavior of individual decision making units: business firms and households

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macroeconomics

Back 11

branch of econ that examines the economic behavior of aggregates- income, employment, output and so on- on a national scale

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fields of economics

Back 12

labor
environmental
international
development
public finance
econometrics
monetary economics

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positive economics

Back 13

seesks to understand behavior and operation of systems without making judgements. it describes what exists and how it works

(key word: is)

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normative economics

Back 14

analyzes outcome of economic behavior, and evaluated as good or bad. (key word: should)

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descriptive economics

Back 15

compilation of data that desctibe phenomena and acts

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economic theory

Back 16

a statement or set or related statements about cause and effect, actio and reaction

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model

Back 17

a formal statement of a theory, usually a mathematical statement of a presumes relationship between 2 or more variables

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variable

Back 18

a measure that can change from time to time or from observation to observation

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ockham's razor

Back 19

the principle that irrelevent detail should be cut away

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ceteris paribus

Back 20

a device used to analyze the relationship between two variables while the values of other variables are held unchanged

Front 21

post hoc, ergo propter hoc

Back 21

a common error made in thinking about causation: if event a happens before event b, it is not neccesarily true that A caused B

Front 22

correlation and causation

Back 22

correlation does not always mean caustation

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efficiency

means __ efficieny in econ

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an efficent economy is one that produces what people what at the least possible cost

allocative

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equity

Back 24

fariness

Front 25

economic growth

Back 25

an increase in the total output of an economy

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criteria for judging economic outcomes

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efficiency
EQUITY
growth
stability

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stability

Back 27

condition in which national output is growing steadily with low inflation and full employment of resources

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capital

Back 28

thigns that are themselves produced and that are then use in the production of other goods and services

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factors of production

3 main factors of production

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inputs into the process of production. aka resources

land
labor
capital

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production

Back 30

process that transforms scarce resources into useful goods and services

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inputs or resources

Back 31

anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants

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outputs

Back 32

usable products

Front 33

command economy

free market economy

Back 33

decision about what is produced is made by a central government

allows individuals and businesses pursue their self interests with minimal government involvement

Front 34

production possibilities frontier (PPF)

Back 34

a graph showing all potential combinations of goods and services that can be produced inf a coutnry utilizes its resources efficiently

Front 35

theory of comparitive advantage

Back 35

ricardos theory that specialization and free trade will beneift all trading parties, even those that may be absolutley more efficient producers

Front 36

absolute advantage

Back 36

a producer has an absolute advantage over another in the production of a good or service if it can produce that product using fewer resources

Front 37

comparitive advantage

Back 37

production of a good or service if it can produce at a lower opportunity cost

Front 38

the basic economic problem

Back 38

limited resources available to fufill infinite human wants

Front 39

consumer goods

Back 39

goods produced for present consumption

Front 40

investment

Back 40

the process of using resources to produce new capital

Front 41

does capital have to be tangible?

Back 41

no

education
comp programs

Front 42

what occurs during economic dornturns or recessions

Back 42

industrial plants run less than their total capacity

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3 factor of production

Back 43

land- resources, etc
labor- skills, abilites
capital- things use to make other things

Front 44

inefficency of production results from...

Back 44

mismanagement of the economy

mismanagement of the firm

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efficient mix of output

Back 45

in addition to operating on the ppf, companies must be operating on the right point on the ppf

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marginal rate of transformation

Back 46

the slope of the ppf.

Front 47

economic growth

Back 47

an increase in the total output of an economy. it occurs when society acquires new resources or when it learned to produce more using existing resources

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innovation

Back 48

the discovery and application of new more efficent production techniques

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market

Back 49

institution through which buyers and sellers interact and engage in exchange

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consumer sovereignty

Back 50

consumers dictate what will be produced by choosing what to purchase and what not to

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free enterprise

Back 51

freedom to start businesses

Front 52

income vs wealth

Back 52

amount a household earns each year

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

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tradeoff

Back 53

what we give up to produce more of another good

Front 54

law of comparitive advantage

who

Back 54

suggests that each country will benefit by specialzing in productiong of what is can at the lowest opportunity costs

david ricardo

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division of labor

Back 55

specialize in trade to be efficient

Front 56

firm

Back 56

organization that transforms resources into products.

Front 57

entrepreneur

Back 57

a person who organizes manages and assumes risks of a firm, taking no ideas ans turning it into a business

Front 58

price theory

Back 58

price dictates economic decisions

Front 59

product or output markets

Back 59

markets in which goods and services are exchanged

Front 60

households

Back 60

the consuming units in an economy

Front 61

input or factor markets

Back 61

market in which the resources used to produce products are exchanged

Front 62

labor market

Back 62

households supply work for wages to firm that demand labor

Front 63

capital market

Back 63

households supply savings for interest or calims to future profits (bonds)

Front 64

land market

Back 64

households supply land or other real property in exchange for rent

Front 65

quantity demanded

Back 65

amount of a good or service that consumers plan to buy during a given time at a given price

Front 66

demand schedule

Back 66

shows quanitities that consumers will be willing to buy at each price

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demand curve

x and y axes

Back 67

graphical representation of demand schedule

x- quantity
y- price

Front 68

normal goods

inferior goods

Back 68

as income rises (falls) demand rises (falls)

as income rises (falls) demand falls (rises)

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law of demand

Back 69

negative relationship between price and quantity demanded, as price rises, demand falls. (vice versa)

Front 70

substitutes

complements

Back 70

good that can be used in place of another

good that is used in combination with another good

Front 71

shifting curve vs movement along curve (demand curve)

Back 71

change in price

change in anything else (income, preferences, prices of other goods or services)

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pefect substitutes

Back 72

identical products

Front 73

market demand

Back 73

the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service

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profit

Back 74

difference between revenue and costs

Front 75

quantity supplied

Back 75

amount of product produced and sold during a certain time period

Front 76

supply schedule

Back 76

shows quantitites that producers would be willing to sell at each price

Front 77

supply curve

Back 77

a graphical representation of the supply schedule

Front 78

law of supply

Back 78

increasse in price leads to decrease in demand (vice versa)

Front 79

shifting curves vs moving along curves

Back 79

change in price leads to movement along curve.

anything else (production costs, input costs, price of related goods or services) leads to movement of curve

Front 80

market supply

Back 80

sum of all firms' supply in an economy

Front 81

surplus

excess demand/shortage

Back 81

when quanitity supplied exceeds quanitity demanded

qD is greater than qS

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equilibrium

Back 82

condition where qS and qD are equal

Front 83

decentralized decisions

Back 83

decisions made by the operation of the market

Front 84

price rationing

Back 84

how market allocates goods and services to consumers when quantity demanded exceeds quantity supplied

a drop in supply will result in an increase of product (lobster ex)

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price

Back 85

means by which a free market allocates goods and services

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price floor

Back 86

MIN price you can charge for a good/service

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price ceiling

Back 87

MAX price you can charge for a good or service.

Front 88

queuing

Back 88

waiting in line to recieve goods: nonprice rationing

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favored customers

Back 89

those who recieve special treatment from dealres during situations of excess demand

Front 90

ration coupons

Back 90

entitle individualds to purchase a certain amount of a given product per month

Front 91

black market

Back 91

a market in which illegal trading takes place at market demand prices

Front 92

when is supply lines perfectly vertical

Back 92

when there is a set number of quanity (54000 tickets, 1 painting)

Front 93

consumer surplus

Back 93

the difference between the max amount a person is willing to pay for a good and its current market price

Front 94

producer surplus

Back 94

the difference between the current market price and the full cost of production for the firm

Front 95

deadweight loss

underproduction
overproduction

Back 95

the net loss of producer and consumer surplus from underproduction or overproduction

Front 96

elasticity

Back 96

quantified response in one variable when another variable changes

Front 97

price elasticity of demand equation

Back 97

Change %q / Change%P

Front 98

range of numbers

elastic
unitary elastic
inelastic
perfectly inelastic

Back 98

x>1.0
1.0
.1>x>1.0
0

Front 99

cross price elasticity of demand equation

substitutes
compliments

Back 99

Change % Q X/ Change %P Y

+
-

Front 100

elasticity of supply

Back 100

Change %Q supplied/ Change %P

Front 101

income elasticity of demand

normal good
inferior good

Back 101

% change in Q demanded/ % change income

+
-

Front 102

deteriminants of elasticity

substitutes
importance
time dimension

Back 102

higher elasticity if sub exists
higher elasticity if not as important
increases as time progresses

Front 103

households and firms

Back 103

households demand outputs and supply inputs

firms demand inputs and supply outputs

Front 104

perfect competition

Back 104

many firms, each small, producing similar products who dont have control over prices

Front 105

homogeneous products

Back 105

products in a perfectly competitive industries

Front 106

perfect knowledge

Back 106

the assumption that households posses knowledge of quality and price in the market

Front 107

3 basic decisions of a household

Back 107

1. how much of each product to demand
2. how much labor to supply
3. how much to spend today and how much to save.

Front 108

budget constraint income equation

Back 108

PxX + PyY = income

Front 109

choice set, opportunity set

Back 109

the set of options that is defiend and limited by a budget constraint

Front 110

budget constraint

Back 110

the limits imposed on household choices by income, wealth, and prices

Front 111

real income

Back 111

set of opportunities to purchase real goods and services available to a household as determined by prices and money income

(if prices fall, real income increases even though actual income doesnt)

Front 112

utility

Back 112

benefit or satisfaction that a person gets from the consumption of a good or service

Front 113

marginal utility

Back 113

additional satisfaction gained by the consumption of one or more units of something

Front 114

total utility

Back 114

the total amount of satisfaction obtained from consumption of a good or service

Front 115

law of diminishing marginal utility

Back 115

the more of any one good consumed in a given period, the less satisfaction generated by consuming each additonal unit of the same good

Front 116

utility maximizing rule

Back 116

MUx/Px = MUy/Py

Front 117

income/substitution effect

Back 117

if price falls, people by more

if price rises, people by less

real income, substitution effect

Front 118

cost benefit analysis

Back 118

formal technique where the benefits of a public project are weighed against its costs

Front 119

diamond water paradox

Back 119

things of have value have little values in exchange.

Front 120

labor supply curve

Back 120

diargram that shows the quantity of labor supplied at differnt wage rates.

Front 121

indifference curves

Back 121

shows combination of goods in which a person will be equally happy

Front 122

labor supply decision

Back 122

whether to work
how mych to work
what kind of job to have

Front 123

labor vs leisure decision

Back 123

decision of how much to work and how much to rest

Front 124

income effect/substitution effect of wage increase

Back 124

people will make more per hour, people will work less

opportunity cost of leisure increases, people will work more.