Economics For Today 2009 - Microeconomics Chp 1-4

Front 1

Scarcity

Back 1

Wants are greater than supply of goods, resources and time.

Front 2

Resources (Factors of Production)

Back 2

Inputs used to produce goods & services Categories are Land, Labour and Capital.

Front 3

Land

Back 3

Description of any resource provided by nature

Front 4

Labour

Back 4

The mental & physical capability of workers to produce goods & services

Front 5

Entrepreneurship

Back 5

The creative ability of individuals to seek profits by combining resources into new goods & services.

Front 6

Capital

Back 6

The physical plant, machinery and equipment used to create other goods.

Front 7

Economics definition

Back 7

the study of how society chooses to allocate its scarce resources to produce goods & services to satisfy untlimited wants.

Front 8

Microeconomics

Back 8

Decisionmaking by a single individual, household, firm or industry

Front 9

Macroeconomics

Back 9

Decisionmaking for the whole economy

Front 10

Scientific Method

Back 10

1. Identify problem
2. Develop a simple model
3. Collect data and test model

Front 11

Model

Back 11

Simplified descriuption used to understand and predict relationship between variables.

Front 12

Ceteris paribus assumption

Back 12

While certain variables change, all other variables will remain unchanged/constant.

Front 13

Association vs Causation

Back 13

The fact that one variable follows anopther does not mean the first event caused the second event.

Front 14

Positive Economics

Back 14

An analysis limited to facts and statements that are verifiable.

Front 15

Normative Economics

Back 15

An analysis based on value judgments. (What should be)

Front 16

Enlightened self interest

Back 16

members of the community respects the laws and mores of society while pursuing individual goals.

Front 17

Three fundamental questions facing an economy

Back 17

1. What to produce?
2. How to produce it?
3. For Whom to produce it?

Front 18

Production Possibilities Frontier (PPF)

Back 18

Capacity to produce goods & services, subject to the constraint of scarcity.

Front 19

Inefficient Production

Back 19

Occurs any point inside PPF

Front 20

Efficient Production

Back 20

All points along the PPF

Front 21

Marginal Analysis

Back 21

Compare additional costs of a change with additional benefits of the change

Front 22

Opportunity Cost

Back 22

Is the cost of the best alternative forgone for a chosen option

Front 23

Law of increasing opportunity costs

Back 23

Opportunity cost increases as production of an output expands. Ie. Suitability of resources decreases as production increases

Front 24

Investment

Back 24

When an economy produces more capital. ie. adds factories or plant faster than depreciation

Front 25

Economic Growth

Back 25

When PPF moves outwards as result in increase in resources or advance in technology

Front 26

Consumer Sovereignty

Back 26

Consumer freedom to decide what goods and services to buy

Front 27

Law of Demand

Back 27

Inverse relationship between price and quantity demanded, Certeris paribus.

Front 28

Change in Quatity demanded

Back 28

Mvement along stationary demand curve caused by change in price.

Front 29

Non-price related detrminants of Demand

Back 29

1. Number of sellers
2. Tastes & preferences
3. Income
4. Expectations
5. Prices of related goods (substitutes & complements)

Front 30

Normal Good

Back 30

Good or Service where there a direct relationship between changes in income and its demand

Front 31

Inferior Good

Back 31

Good or Service where there is an inverse relationship between income and its demand (Want less when incomes rise)

Front 32

Sustitute Good

Back 32

Good or Service that competes with another good. Direct relationship between price change and demand for its competitor

Front 33

Complementary Good

Back 33

Good or Service that is jointly consumed with another good or service. Inverse relationship between price chnage and demand for its complementary good.

Front 34

Law of Supply

Back 34

Direct relationship between price and quantity supplied, ceteris paribus

Front 35

Surplus or Shortage

Back 35

Exists at any point where quantity demanded and quantity supplied are not equal.

Front 36

Change in quantity supplied

Back 36

Movement along stationary supply curve caused by a change in price

Front 37

Non-price determinants of Supply

Back 37

1. The number of sellers
2. technology
3. Input prices
4. Taxes & Subsidies
5. Expectations
6. Prices of other goods

Front 38

Equilibrium

Back 38

Unique price & quantity established at intersection of Supply & Demand curves

Front 39

Efficient outcome

Back 39

When society maximises benefits it gains from use of its scarce resources.

Front 40

Price System

Back 40

The Supply & Demand mechanism that establishes equlirium through allowing prices to rise and fall.

Front 41

Changes in Market Equilirium

Back 41

Created by changes in the position of the supply curve and/or the demand curve

Front 42

Price Ceiling & Price Floors

Back 42

Maximum and Minimum prices enacted by law to prevent market determining price.

Front 43

Price Ceiling - Shortage

Back 43

If Price Ceiling set above equilibrium a shortage will persist

Front 44

Price Floor - Surplus

Back 44

If a Price Floor is set above equilibrium a surplus will persist

Front 45

Market Failure

Back 45

Market operates inefficiently. Sources include lack of competition, public goods and income inequalities.

Front 46

Externality

Back 46

A cost or benefit of a good that is imposed on people who are not buyers or sellers of that good. Remedy through subsidy or law making.

Front 47

Public Good

Back 47

Is a good/Service that is consumed collectively AND cannot be consumed by one person regardless of whether they pay. ie. Street lights, defense.