Economics Final Exam

Front 1

The study of economics

Back 1

The study of the choices people make to attain their goals, given their scarce resources.

Front 2

What is an economic model?

Back 2

A simplified version of reality used to analyze real-world economic situations.

Front 3

What is the term "market" in economics

Back 3

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade

Front 4

Economists assume that individuals

Back 4

1. People are rational 2. People respond to economic incentives 3. Optimal decisions are made at the margin …Also, they assume that most people act in their own best interests. This results in them, on average, acting rationally as a means to further their goals. (They do things that provide the most utility

Front 5

Making optimal decisions "at the margin"

Back 5

"What if we mapped out what days we were going to attend class a year before? We never do that. We almost always make our decisions on the exact time that we’re about to make them.

Front 6

What is a trade-off?

Back 6

"The idea that because of scarcity, producing more of one good or service means producing less of another good or service. ...Opportunity cost

Front 7

Opportunity cost

Back 7

The highest-valued alternative that must be given up to engage in an activity.

Front 8

Productive efficiency

Back 8

The situation in which a good or service is produced at the lowest possible cost.

Front 9

Positive economic statement

Back 9

A positive statement is a statement about what is and that contains no indication of approval or disapproval

Front 10

Normative economic statement

Back 10

Analysis concerned with what ought to b

Front 11

Law of Demand

Back 11

The rule that, 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

Front 12

Law of Supply

Back 12

The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.

Front 13

Demand versus Quantity Demanded

Back 13

A change in quantity demanded is brought about by a change in price while a change in demand is brought about by a change in income, tastes, change in prices of related goods, etc.

Front 14

Quantity demanded

Back 14

The amount of a good or service that a consumer is willing and able to purchase at a given price.

Front 15

Equilibrium

Back 15

A situation in which quantity demanded equals quantity supplied.

Front 16

Shortage

Back 16

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

Front 17

Surplus

Back 17

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

Front 18

Consumer Surplus

Back 18

The difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Front 19

Demand curve

Back 19

A demand curve that shows the relationship between the price of a product and the quantity of the product demanded.

Front 20

Marginal cost

Back 20

The additional cost (change in total cost) to a firm of producing one more unit of a good or service.

Front 21

Minimum wage outcomes

Back 21

This would create a price floor and there would be a surplus of workers.

Front 22

Price elasticity of demand

Back 22

The responsiveness of the quantity demanded to a change in price measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product’s price.

Front 23

Cross-price elasticity

Back 23

The percentage change in quantity demanded of one good divided by the percentage change in the price of another good.

Front 24

Utility

Back 24

The enjoyment or satisfaction people receive from consuming goods and services.

Front 25

law of diminishing marginal utility

Back 25

The principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time.

Front 26

Sunk costs

Back 26

A cost that has already been paid and cannot be cannot be recovered

Front 27

The endowment effect

Back 27

The tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn’t already own it.

Front 28

Marginal utility

Back 28

The change in total utility a person receives from consuming one additional unit of a good or service.

Front 29

Technological change

Back 29

A change in the ability of a firm to produce a given level of output with a given quantity of inputs.

Front 30

Short run

Back 30

The period of time during which at least one of a firm’s inputs is fixed.

Front 31

Long run

Back 31

The period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant.

Front 32

Variable costs

Back 32

Costs that change as output changes.

Front 33

Fixed costs

Back 33

Costs that remain constant as output changes.

Front 34

Implicit cost

Back 34

A nonmonetary opportunity cost.

Front 35

The law of diminishing marginal returns

Back 35

The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.

Front 36

Minimum efficient scale

Back 36

The level of output at which all economies of scale are exhausted.

Front 37

Economies of scale

Back 37

The situation when a firm’s long-run average costs fall as it increases output.

Front 38

PC characteristics imply

Back 38

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

Front 39

If, for a perfectly competitive firm, if price exceeds the marginal cost of production, the firm should

Back 39

expand production (from zero) if price exceeds marginal cost and price is greater than minimum average cost.

Front 40

If a typical firm in a perfectly competitive industry is incurring losses, then

Back 40

It'll stay open until P <= AVC

Front 41

Long-Run Equilibrium in a Perfectly Competitive Market

Back 41

"The situation in which the entry and exit of firms has resulted in the typical firm breaking even.

Front 42

Patents

Back 42

Legal barrier to entry: exclusive right of an inventor to use, or to allow another to use, her or his invention.

Front 43

Natural monopoly

Back 43

Natural monopolies arise where the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual and potential competitors.