Economics

Front 1

Society is getting the maximum benefits from its scarce resources.

Back 1

Efficiency

Front 2

Benefits that are distributed uniformly among society's members.

Back 2

Equity (Economic Equality)

Front 3

What does it mean to say that there is a tradeoff between equity and efficiency?

Back 3

Efficiency refers to the size of the economic pie, and equality refers to how the pie is divided into individual slices

Front 4

Whatever must be given up to obtain some item

Back 4

Opportunity cost

Front 5

a small incremental adjustment to an existing plan of action

Back 5

Marginal Change

Front 6

Why are free markets a good way of organizing economic transactions?

Back 6

Free Markets adjust accordingly to supply and demand (invisible hand)

Front 7

What two things do market determined prices reflect?

Back 7

The value of a good to society and the cost to society of making the good.

Front 8

Why do economists make assumptions concerning the models they use?

Back 8

to simplify reality to improve our understanding of it.

Economists assume away many of the details of the economy that are irrelevant for studying the question at hand.

Front 9

What is the Invisible hand?

Back 9

In economics, the invisible hand of the market is a metaphor used by Adam Smith to describe the self-regulating behavior of the marketplace. Individuals can make profit, and maximize it without the need for government intervention.

Front 10

Factors of production that are used to create goods or services and are not themselves in the process.

Back 10

Capital

Front 11

The _______________ curve traces out the effect of a good's price on the quantity of the good consumers want to buy.

Back 11

Demand Curve

- A graph of the relationship between the price of a good and the quantity demanded.

Front 12

A graph of the relationship between the price of a good and the quantity supplied.

Back 12

Supply Curve

Front 13

a market in which there are so many buyers and so many sellers that each has a negligible impact on the market price.

Back 13

Competitive Market

Front 14

a good for which, other things being equal, an increase in income leads to an increase in demand.

Back 14

Normal Good

Front 15

a good for which, other things being equal, an increase in income leads to a decrease in demand.

Back 15

Inferior Good

Front 16

When a fall in the price of one good raises the demand for another good

Back 16

Complements

Front 17

When a fall in the price of one good reduces the demand for another good

Back 17

Substitutes

Front 18

the sum of all the individual demands for a particular good or service

Back 18

Market Demand

Front 19

the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

Back 19

Law of Demand

Front 20

the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises

Back 20

Law of Supply

Front 21

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

Back 21

Law of Supply and Demand

Front 22

What is another name for equilibrium price?

Back 22

Market-Clearing Price

Front 23

A situation in which quantity supplied is greater than quantity demanded.

Back 23

Surplus - Suppliers are unable to sell all the want at the going price.

Front 24

A situation in which quantity demanded is greater than quantity supplied.

Back 24

Shortage - Demanders are unable to buy all they want at the going price.

Front 25

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants.

Back 25

Elasticity

Front 26

Define Elastic

Back 26

Demand for a good is said to be elastic if the quantity demanded responds to a change in price.

Ex: Ice Cream is Elastic, because it has many substitutes.

Front 27

Define Inelastic

Back 27

Demand for a good is said to be inelastic if the quantity demanded responds only slightly to changes in the price.

Ex: Eggs are Inelastic, because it has few substitutes. People aren't likely to swap to an alternative if prices rises on eggs due to no substitute.

Front 28

What measures how much the quantity demanded responses to a change in price?

Back 28

Price Elasticity of Demand

PeoD = Percentage change in quantity demanded divided by Percentage change in price

Front 29

Examples of Inelastic Demand and Elastic Demand

Back 29

Elastic - Ice Cream, Nike Shoes, Hair Gel

Inelastic - Food, Clothing, Eggs, Doctor Visits

Front 30

What measures how much the quantity supplied responds to changes in the price.

Back 30

Price Elasticity of Supply

PeoS = Percentage of change in quantity supplied divided by Percentage change in price

Front 31

What measures how the quantity demanded of one good responds to a change in the price of another good.

Back 31

Cross-Price Elasticity of Demand

CeoD = Percentage change in quantity demanded of good 1 divided by the percentage change in price of good 2

Front 32

Why do we even use the mid-point method?

Back 32

The midpoint method gives the same answer regardless of the direction of change.

Front 33

What problems do externalities create when they are present in a market?

Back 33

In order to maximize economic efficiency, regulations are needed to reduce market failures and imperfections, like internalizing externalities. When market imperfections exist, the efficiency of the market declines.

Front 34

Define Positive Externality

Back 34

if the impact on the bystander is beneficial

Ex: Research into new technology provides a positive externality because it creates knowledge that other people can use.

Federal Govt addresses this problem partially through a patent system, which gives inventors exclusive use of their inventions for a limited time.

Front 35

Define Negative Externality

Back 35

if the impact on the bystander is adverse

Ex: The pollution caused by exhaust from a vehicle that other people have to breathe.

Federal Govt attempts to solve this problem by setting emission standards for cars.

Front 36

Remember other side!!!!

Back 36

Supply Curve shows Private Cost

Demand Curve shows Private Value

Social Cost is a shift of the Supply Curve during a Negative Externality

Social Value is a shift of the Demand Curve during a Positive Externality

Front 37

Does society produce too much or too little products that have positive externalities? What about negative ones?

Back 37

Positive Externalities lead markets to produce smaller quantities than socially desirable.

Negative Externalities lead markets to produce larger quantity than socially desirable.

Front 38

Are markets with externalities efficient?

Back 38

NO

Front 39

Altering incentives so that people take account of the external effects of their actions

Back 39

Internalizing the Externality

Front 40

Coase Theorem

Back 40

The Coase Theorem says that private economic actors can potentially solve the problem of externalities among themselves. Whatever the initial distribution of rights, the interested parties can reach a bargain in which everyone is better of and the outcome is efficient.

Front 41

Command and Control Regulation

Back 41

a public policy towards a negative externality.

Ex: Government Regulation that can cause firms to lower emissions, get new technology to adopt for lowering emissions,

Front 42

Corrective Tax and Tradable Permit

Back 42

Corrective Tax - Taxes enacted to deal with the effects of negative externalities.

Tradable Permit - Tradable permits are a cost-efficient, market-driven approach to reducing greenhouse gas emissions. Those polluters that can reduce their emissions relatively cheaply may find it profitable to do so and to sell their emissions permits to other firms.