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49 Cards in this Set
- Front
- Back
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A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
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Scarcity
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The study of the choices people make to attain their goals, given their scare resources.
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Economics
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What are the three key economic ideas?
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1. People are rational.
2. People respond to economic incentives. 3. Optimal decisions are made at the margin. |
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A simplified version of reality used to analyze real-world economic situations.
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Economic model
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Name the three fundamental economic questions that any company must answer.
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1. What goods and services will be produced?
2. How will the goods and services be produced? 3. Who will receive the goods and services being produced? |
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A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
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Market
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What is the optimal decision by economists to continue activity?
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The optimal decision is to continue any activity up to the point where the marginal benefit equals the marignal costs.
MB=MC |
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Analysis that involves comparing marginal benefits and marginal costs.
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Marginal analysis
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What is the economic problem that any society faces?
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It only has a limited amount of economic resources - such as workers, machines, and raw material - and so can produce only a limited amount of goods and services.
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The idea that because of scarcity, producing more of one good or service means producing less of another good or service.
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Trade-off
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The highest-valued alternative that must be given up to engage in an activity.
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Opportunity cost
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What are the two ways societies organize their economies in order to answer the three questions of what, how, and who?
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1. Centrally planned economy
2. Market economy |
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An economy in which the government decides how economic resources will be allocated.
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Centrally planned economy
- From 1917 to 1991m the most important centrally planned economy was the Soviet Union. |
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An economy in which the decisions of households and firms interacting in markets allocate economic resources.
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Market economy
- All the high-income democracies such as the United States, Canada, Japan, and the countries of western Europe are market economies. |
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An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.
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Mixed economy
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A situation in which a good or service is produced at the lowest possible cost.
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Productive efficiency
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A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.
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Allocative efficiency
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A situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.
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Voluntary exchange
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The fair distribution of economic benefits.
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Equity
- There is often a trade-off between efficiency and equity. |
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Something measurable that can have different values, such as the wages of software programmers.
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Economic variable
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Analysis concerned with what is.
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Positive analysis
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Analysis concerned with what ought to be.
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Normative analysis
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The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
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Microeconomics
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The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
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Macroeconomics
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A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
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Scarcity
- Scarcity requires trade-offs |
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What are the four Factors of Production?
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1. Workers
2. Capitals 3. Natural resources 4. Entrepreneurial ability |
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A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
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Production Possibilities Frontier (PPF)
- To produce production at G, the firm would need more machines or more workers. |
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The highest-valued alternative that must be given up to engage in an activity.
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Opportunity cost
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Why does increasing marginal opportunity costs occur?
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Some workers, machines, and other resources are better suited to one use than to another.
- The more resources already devoted to an activity, the smaller the payoff to devoting additional resources to that activity. |
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The ability of the economy to increase the production of goods and services.
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Economic growth
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The act of buying and selling.
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Trade
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The ability of an individual, a firm, or a country to produce more of a good or service than competitors
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Absolute advantage
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The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
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Comparative advantage
- The basis for trade is comparative advantage, not absolute advantage. |
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A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.
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Market
- Physical or virtual |
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Markets for goods- such as computers- and services- such as medical treatment.
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Product markets
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Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.
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Factor market
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The inputs used to make goods and services.
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Factors of production
- Labor, capital, natural resources, and entrepreneurial activity. |
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What are the five steps to making an economic model?
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1, Decide on the assumptions to use in the developing world.
2. Formulate a testable hypothesis. 3. Use economic data to test the hypothesis. 4. Revise the model if it fails to explain well the economic data. 5. Retain the revised model to help answer similar economic questions in the future. |
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Name two behavioral assumptions economists make when making a economic model.
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Economists assume:
1. The consumers will buy the goods and services that will maximize their well-being or satisfaction. 2. Firms act to maximize their profits. |
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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.
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Perfectly competitive market
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The rule that, holding everything else is 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.
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Law of Demand
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The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes.
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Substitute effect
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The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power.
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Income effect
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The requirement that when analyzing the relationship between two variables- such as price and quantity- demanded- other variables must be held constant.
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Ceteris Paribus ("all else equal")
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What are five variables that shift market demand.
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1. Income
2. Prices of related goods 3. Tastes 4. Population and demographics 5. Expected future prices |
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A good for which the demand increases as income rises and decreases as income falls.
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Normal good
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A good for which the demand increases as income falls and decreases as income rises.
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Inferior good
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Goods and services the can be used for the same purpose.
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Substitutes
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Goods and services that are used together.
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Complements
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