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45 Cards in this Set

  • Front
  • Back
What is economics?
The study of choices people make to attain their goals given scarce resources
What are the 3 most important ideas in individual choice making?
-People are rational
-Peple respond to economic incentives
-Optimal decisions are made at the margin
What are the 3 fundamental questions society must ask when concerning trade-offs?
-What goods and serviced will be produced?
-How will the goods and services be produced?
-Who will recieve the goods and services produced
What is marginal analysis?
Analysis that involves comparing marginal benefits and marginal costs
What are thee possible solutions to addressing trade-off questions? Explain each.
-Tradition: set precedence in tradition and continue a certain aspect of society in the name of tradition
-Command: answers questions of economics by a person at the top, and all below will follow orders
-Market: concept of price/profit
What are economic models and under what conditions are they useful?
They are simplified versions of reality used to analyze real-world economic situations. They are useful only if they are simplified and unrealistic.
What are productive and allocative efficiency?
Productive efficiency is the situation in which a good or service is produced at the lowest possible cost where as allocative efficiency when production reflects consumer preferences and has a MB equal to the MC of production
What is voluntary exchange
The situation where both the buyer and the seller of a product are made better off by the transaction
What are positive and normitive analyses?
A positive analysis is concerned with what is, where a normative analysis is concerned with what should be
What are micro- and macro-economics?
Microeconomics is the study of how households and firms make choices where macroeconomics is the study of the economy as a whole
What is opprotunity cost?
The highest valued alternative that must be given up to engage in an activity
What is a production possiblities frontier (PPF)?
It is a curve showing the maximum attainable combinations of two products that may be produced with available resources
What is the law of increasing cost?
As you produce more of something its opportunity cost increases
What is economic growth?
The ability of the economy to produce increasing quantities of goods and services
What are absolute and comparative advantage?
Absolute advantage is the ability of one to produce more of a good or service than competitors using the same amount of resources. Comparative advantage is the ability of one to produce a good or service at a lower opportunity cost than other producers
What is economics?
The study of choices people make to attain their goals given scarce resources
What are the 3 most important ideas in individual choice making?
-People are rational
-Peple respond to economic incentives
-Optimal decisions are made at the margin
What are the 3 fundamental questions society must ask when concerning trade-offs?
-What goods and serviced will be produced?
-How will the goods and services be produced?
-Who will recieve the goods and services produced
What is marginal analysis?
Analysis that involves comparing marginal benefits and marginal costs
What are thee possible solutions to addressing trade-off questions? Explain each.
-Tradition: set precedence in tradition and continue a certain aspect of society in the name of tradition
-Command: answers questions of economics by a person at the top, and all below will follow orders
-Market: concept of price/profit
What are economic models and under what conditions are they useful?
They are simplified versions of reality used to analyze real-world economic situations. They are useful only if they are simplified and unrealistic.
What are productive and allocative efficiency?
Productive efficiency is the situation in which a good or service is produced at the lowest possible cost where as allocative efficiency when production reflects consumer preferences and has a MB equal to the MC of production
What is voluntary exchange
The situation where both the buyer and the seller of a product are made better off by the transaction
What are positive and normitive analyses?
A positive analysis is concerned with what is, where a normative analysis is concerned with what should be
What are micro- and macro-economics?
Microeconomics is the study of how households and firms make choices where macroeconomics is the study of the economy as a whole
What is opprotunity cost?
The highest valued alternative that must be given up to engage in an activity
What is a production possiblities frontier (PPF)?
It is a curve showing the maximum attainable combinations of two products that may be produced with available resources
What is the law of increasing cost?
As you produce more of something its opportunity cost increases
What is economic growth?
The ability of the economy to produce increasing quantities of goods and services
What are absolute and comparative advantage?
Absolute advantage is the ability of one to produce more of a good or service than competitors using the same amount of resources. Comparative advantage is the ability of one to produce a good or service at a lower opportunity cost than other producers
Why is comparative advantage more important and why is absolute advantage is effectively irrelevant?
Absolute advantage is the most important because that is how countries decide their production. Everyone has comparative advantage in something for there is always someone who does something worse than someone else. Absolute advantage is irrelevant because decisions are not based on absolute advantage
What is the quantity demanded?
The amount of a good or service that a consumer is willing and able to purchase at a given price.
What is the demand curve?
A curve that shows the relationship between the price of a product and the quantity of the product demanded.
What is market demand?
The demand by all the consumers of a given good or service.
What are 5 variables of market demand?
-Prices of related goods
-Income
-Tastes
-Population and demographics
-Expected future prices
What are types of related goods that can influence market demand?
-Substitutes
-Compliments
What are aspects of how income can influence market demand?
-Normal Good
-Inferior Good
What is quantity supplied?
The amount of a good or service that a firm is willing and able to supply at a given price.
What is a supply curve?
A curve that shows the relationship between the price of a product and the quantity of the product supplied.
What is the law of supply?
Holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price causes decreases in the quantity supplied.
What is the law of demand?
Holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.
What are the 5 factors that can shift supply?
-Price of inputs
-Technological change
-Prices of substitutes in production
-Expected future prices
-Number of firms in the market
What is market equilibrium?
A situation in which quantity demanded equals quantity supplied.
What is competitive market equilibrium?
A market equilibrium with many buyers and many sellers.
What is a surplus?
A situation in which the quantity supplied is a greater that the quantity demanded.