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29 Cards in this Set

  • Front
  • Back
What is economics?
A study of choices that people make to attain their goals given scarce resources.
Three key economic ideas
1. people are rational
2. people resond to incentives
3. rational decisions occur at the margin
Oppertunity Cost
What another good you have to give up in order to obtain what you want.
Three fundamental questions of economics
1. What is going ot be produced?
2. HOw is it going to be produced?
3. Who is going to benefit?
Positive vs. Normative Economics
+: economic statements about what is

-: economic statements about what should be.
Production possibility fronteer
if you are inside the curve, you are either not using all of your resources and/or you are not being efficient.
Economic law
When economists see a phenomenon so grat and so many times that a law is made of it.
Law of increasing costs
As you produce more of something, its oppertunity cost rises.
Autarky
Country is by itsself, no trade
Zero sum game
amount winners win is the same amount that the losers lose
consumer soveinernty
products that are produced is determined by consumer
Productive efficiency
producing good at lowest possible price
change in amount demanded
the only thing that can bring about change in demand is the price of the same product
five things that can change demand
1. change in prices of other goods (substitutes, complements, unrelated)
2. change in income
3. tastes or preferences
4. change in population
5. change in expected future prices
five things that can make a supply curve move
1. input prices
2. change in technology
3. changes in prices of other goods
4. expectations of future prices
5. number of suppliers
substitution effect
change in quantity demanded that results in a change in price, making it more or less expensive than substitutes
income effect
change in price demanded that results from the effect of a change in goods price on consumers purchasing power
ceterisparibus
"all else equals" -- when you examine the effects of a change between 2 variables, you must hold everything fixed.
externalities
two or more parties who agree on something that might have a positive or negative effect
four causes of neg. externalities
1. increase cost of other businessess
2. increase cost of households
3. deteriation of health
4. aesthetic costs
coase theory
if you have well-defined property rights, the neg. externalities will take care of themselves.
command system
someone goes and determines how much every company has to reduce pollution
tragedy of the commons
everyone knows its going to end bad, but people do it anyways
merit goods
private good that government wants you to consume, ex. savings bonds, elementary education
merit bads
private good that gov't does not want you to consume ex. cigarettes
market failures (2)
1. externalities
2. free rider
5 things that will determine if a product is elastic
1. the existance of substitutes
2. definition of market
3. time span
4. important to be unimportant
5. necessities/luxuries
Consumer surplus
amount of $ a person is willing to pay over equilibrium
producer surplus
the amount of $ that a producer is willing minimum to pay under equillibrium.