Econ Unit 1 Flashcards

Front 1

Def. Economics

Back 1

the study of rational choice under conditions of scarcity

Front 2

Opportunity cost

Back 2

the best alternative that you give up when you make a choice

Front 3

Why isn't garbage scarce?

Back 3

Because people do not want garbage

Front 4

Rational choice

Back 4

people making calculated, self-interested choices after weighing the costs and benefits of those choices

Front 5

What action does a rational agent choose?

Back 5

The action that is most self-satisfying

Front 6

What do all choices come with?

Back 6

A cost

Front 7

What is the real cost of choosing something?

Back 7

The value of the next best alternative that you gave up to make the choice you did (aka opportunity cost)

Front 8

How does economics employ the scientific method?

Back 8

By asking questions, producing explanations (models), and forming hypotheses

Front 9

What fields have economists integrated into?

Back 9

Business, government, and academia

Front 10

Positive economics

Back 10

Predictive, or descriptive

Front 11

Normative economics

Back 11

Judgmental, or evaluative

Front 12

What are some of the questions that economists ask?

Back 12

-What should we produce?
-How will it be produced?
-Who is going to get it?

Front 13

What do economic models allow us to see?

Back 13

The big picture

Front 14

What must economists do after creating the hypothesis?

Back 14

Economists must test it in the real world by collecting data and comparing it to the model

Front 15

When have economists explained a condition in the real world?

Back 15

When their collected data matches the predictions of their economic model

Front 16

What do economists in business do?

Back 16

Help make forecasts about when to launch new products and enter foreign markets

Front 17

What do economists in government do?

Back 17

Collect data
Conduct research
Devise plans to finance the national debt
Make decisions regarding implementation of new taxes

Front 18

What do economists in academia do?

Back 18

Teach
Conduct research
Publish and present reports of their findings

Front 19

Positive economics

Back 19

Economics as a predictive, descriptive social science;

answers specific questions in economics;

seeks to answer the question, "How will the world work?"

Front 20

Normative economics

Back 20

About making judgments or evaluations;

is about norms, or standards of judgment;

seeks to answer the question, "How should the world work?"

Front 21

Microeconomics

Back 21

the study of the decision-making process of individuals

Front 22

Macroeconomics

Back 22

the study of aggregate decision making

Front 23

Who are the players in the economy?

Back 23

Households
Businesses
Government
Foreign trade

Front 24

Nominal variables

Back 24

Measured in terms of actual dollar values

Front 25

Real variables

Back 25

Measured in terms of physical goods and services

Front 26

What is an example using the body that demonstrates the difference between microeconomics and macroeconomics?

Back 26

Micro - is like the study of the cell

Macro - is like all of the cells put together to make the entire body

Front 27

Which type of economics examines the Federal Reserve's decisions to control the money supply and their effects on the economy?

Back 27

macroeconomics

Front 28

How are the following studied from a microeconomic perspective?:

-Households
-Businesses
-Government
-Net Exports

Back 28

Households: individual purchasing decisions

Businesses: Ratio of labor to capital

Government: tax rates influence individual purchasing decisions

Net exports: not applicable

Front 29

How are the following studied from a macroeconomic perspective?:

-Households
-Businesses
-Government
-Net Exports

Back 29

Households: aggregate consumption/savings

Businesses: business spending

Government: stimulates or deters economy

Net exports: foreign demand influences production

Front 30

Which type of variables (nominal or real) are easier to calculate?

Back 30

Nominal values

Front 31

Laissez-faire system

Back 31

Citizens make decisions for themselves

Front 32

Planned system

Back 32

Life choices are governed by a central planner

Front 33

In the real world, what are all economies?

Back 33

Mixed

Front 34

What are individuals motivated by in a laissez-faire system?

Back 34

Price

Front 35

What may a central planner do?

Back 35

Find it difficult to gather info and motivate individuals;

abuse his/her authority

Front 36

What is the role of the government in the economy?

Back 36

To regulate the balance between laissez-faire and planned systems

Front 37

Who is called the father of modern economics?

Back 37

Adam Smith

Front 38

What are two of Smith's most important works?

Back 38

The Theory of Moral Sentiments

An Inquiry into the Nature and Causes of the Wealth of Nations

Front 39

What did Smith believe lead to common wealth?

Back 39

the pursuit of self-interest

Front 40

What did Smith write in The Theory of Moral Sentiments?

Back 40

That human nature is inherently compassionate and cooperative, and capable of producing great wealth

Front 41

What did Smith proclaim in Wealth of Nations?

Back 41

that individuals are led by an "invisible hand" to pursue self-interests and create a wealthy, productive economy

Front 42

What did Smith believe the government should not do?

Back 42

Intervene

Front 43

What were five things that Smith was concerned about?

Back 43

1) Pollution imposing costs on others

2) Monopolies abusing power

3) Lack of information leading to a breakdown in trust

4) The market not providing for the poor

5) Damaging the human spirit by the division of labor

Front 44

Scatter Diagram

Back 44

a collection of points on a graph showing the observed relationship between two variables;

each point represents an observation

Front 45

Direct relationship

Back 45

Indicates that two variables move in the same direction (e.g. when one variable increases, the other also increases)

Front 46

What does a positive slope of a line plotted on a scatter diagram indicate?

Back 46

A direct relationship between the variables

Front 47

What is the algebraic formula for plotting a linear relationship between two variables?

Back 47

y = a + b (x)

Front 48

What is the formula for the slope of a line?

Back 48

The change in the y-axis variable divided by the change in the x-axis or

rise over run

Front 49

Demand curve

Back 49

the relationship between the price of a good and the quantity a consumer wants to buy at each price

Front 50

What do the variables in the formula for a straight line y = a + b (x) stand for?

Back 50

y: price

a: vertical intercept

b: slope of the line

x: quantity

Front 51

What does change in consumers' income result in?

Back 51

A whole new price/quantity relationship

Front 52

What does a change in income cause?

Back 52

The intercept to change;

a parallel shift in a linear graph

Front 53

Elasticity

Back 53

a percentage-based measurement that measures a consumer's sensitivity to price changes

Front 54

Demand

Back 54

the behavior of consumers in the market

Front 55

What are the components, or determinants, of demand for a product?

Back 55

1) price of the good
2) price of complementary goods
3) price of substitute goods
4) Household income
5) tastes and preferences
6) expectations about future prices

Front 56

Demand function

Back 56

mathematical relationship that predicts the quantity of a good demanded as a function of several related factors

Front 57

Ceteris paribus

Back 57

"all other things equal"

in a functional relationship, all factors but one are held constant

Front 58

Supply

Back 58

the behavior of producers

Front 59

Demand schedule

Back 59

a table showing the relationship between the price of a good and the quantity of the good demanded, ceteris paribus, or all other things constant

Front 60

Demand curve

Back 60

a graph showing the relationship between the price of a good and the quantity of the good that consumers are willing and able to purchase in a given period of time, ceteris paribus

Front 61

Why are demand curves downward sloping?

Back 61

Because as the price of a good falls, the quantity demanded increases and as the price of a good increases, the quantity demanded decreases

Front 62

What is the behavior of price and quantity demanded called?

Back 62

The law of demand

Front 63

Substitution effect

Back 63

Shows consumers purchasing more substitute goods when the price of a good increases;

demonstrates the law of demand

Front 64

Income effect

Back 64

an increase in the price of a good is, in effect, a decrease in a consumer's income

Shows consumers purchasing less of a good when its price increases

Front 65

What does a change in the price of a good result in and how is it shown?

Back 65

A change in the quantity demanded;

shown by a movement along the demand curve

Front 66

What does a change in one of the other variables that are usually held constant result in?

Back 66

Consumers demanding more of the good at every price (change in demand)

Front 67

How is this change in demand represented?

Back 67

As a shift in the demand curve

Front 68

After a change in demand, what is the new demand curve called?

Back 68

D' (D Prime)

Front 69

How is a change in demand illustrated?

Back 69

A shift in the demand curve resulting in a new curve (D')

Front 70

How is a change in the quantity demanded illustrated?

Back 70

Movement along the demand curve

Front 71

Def. Change in quantity demanded

Back 71

a movement along the demand curve caused by a change in the price of the good

Front 72

Def. Change in demand

Back 72

a shift in the demand curve caused by changing a variable other than price

Front 73

Substitute goods

Back 73

goods that can be purchased instead of the original good because they satisfy the same needs

Front 74

Complementary goods

Back 74

Goods that are closely related to and used with the original good

Front 75

Normal good

Back 75

A good characterized by rising consumption when a consumer's income rises

Front 76

Inferior good

Back 76

A good characterized by falling consumption when a consumer's income rises

Front 77

Market demand curve

Back 77

the horizontal summation of all individual demand curves

Front 78

What kinds of factors can shift a market demand curve?

Back 78

Any factors that can shift an individual demand curve

Front 79

What are the components, or determinants, of supply for a product?

Back 79

-price of the product
-price of input goods that are used to make the product
-the state of the industry's technology
-the expectations about the future market price of the good

Front 80

Profit

Back 80

the difference between revenue and costs

Front 81

Supply

Back 81

the amount of a good that producers put on the market for any period of time

Front 82

Supply function

Back 82

a mathematical representation that predicts the quantity of a good supplied as a function of each of the factors that influence supplier behavior

(mathematical representation of the quantity of a good that producers will put on the market)

Front 83

Supply curve

Back 83

a graph showing the relationship between the price of a good and the quantity of the good that producers are willing and able to supply to the market in a given period of time, ceteris paribus

Front 84

Supply schedule

Back 84

a table that shows the relationship between the price of a good and the quantity of that good supplied

Front 85

Opportunity cost (for a producer)

Back 85

what the producer has to give up to produce an additional unit

Front 86

In setting up a supply schedule and then a supply curve, what do we hold constant?

Back 86

All variables except the price of the good itself

Front 87

Law of supply

Back 87

as the price of a good or service increases, the quantity offered for sale generally increases

Front 88

What does the upward slope of the supply curve indicate?

Back 88

Opportunity cost

Front 89

Supply Curve

Back 89

a collection of points representing the quantity of a good that a supplier is willing and able to offer for sale in a given period of time, as a function of the good's price

Front 90

How is change in quantity supplied shown and what is it a function of?

Back 90

Shown as a movement along a supply curve and is a function of price

Front 91

How is change in supply shown and what is it a function of?

Back 91

Shown as a shift in the supply curve and is a function of a change in any of the supply variables except price

Front 92

An increase in the price of inputs causes the supply curve to (blank)

Back 92

shift inward

Front 93

A decrease in the price of inputs causes the supply curve to shift (blank)

Back 93

Shift outward

Front 94

Market supply curve

Back 94

the horizontal summation of all producers' individual supply curves

Front 95

Excess demand in a market

Back 95

a price/quantity combination in which consumers demand a greater quantity of a good than producers supply

Front 96

Excess supply in a market

Back 96

a price/quantity combination in which producers supply a greater quantity of a good than consumers demand

Front 97

Competitive equilibrium

Back 97

exists when the market finds a price/quantity combination from which there is no incentive to move

Front 98

Comparative Statics

Back 98

the study of the change in the competitive equilibrium when one of the variables affecting demand or supply change

Front 99

What happens when a competitive equilibrium is established?

Back 99

There is no incentive for the market to adjust

Front 100

What three step process should you follow when analyzing a change in the competitive equilibrium?

Back 100

1) Identify which side of the market is affected (buyers or sellers)

2) How will the change affect the curve? (Shift inward or outward)

3) What happens to the equilibrium? (Will bidding go up or down)