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81 Cards in this Set
- Front
- Back
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the limited nature of society's resources
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scarcity
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the property of society getting the most it can from its scarce resources
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efficiency
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the property of distributing economic property uniformly among the members of society
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equality
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whatever must be given up to obtain some item
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opportunity cost
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the study of how society manages its scarce resources
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economics
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people who systematically and purposefully do the best they can to achieve their objectives
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rational people
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small incremental adjustments to a plan of action
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marginal changes
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something that induces a person to act
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incentive
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an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
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market economy
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the ability of an individual to own and exercise control over scarce resources
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property rights
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a situation in which a market left on its own fails to allocate resources efficiently
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market failure
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the impact of one person's actions on the wellbeing of a bystander
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externality
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the ability of a single economic actor or small group of actors to have a substantial influence on market prices
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market power
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the quantity of goods and services provided from each unit of labor input
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productivity
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an increase in the overall level of prices in the economy
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inflation
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fluctuations in economic activity such as employment and production
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business cycle
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a visual model of the economy that shows how dollars flow through markets among households and firms
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circular flow diagram
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a graph that shows the combinations of output that the economy can possibly produce given the available factors of production technology
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production possibilities frontier
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the study of how households and firms make decisions and how they interact in markets
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microeconomics
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the study of economy-wide phenomena including inflation, unemployment, and economic growth
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macroeconomics
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claims that attempt to describe the world as it is
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positive statements
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claims that attempt to prescribe how the world should be
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normative statements
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the ability to produce a good using fewer inputs than another producer
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absolute advantage
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whatever must be given up to obtain some item
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opportunity cost
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the ability to product a good at a lower opportunity cost than another producer
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comparative advantage
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goods produced abroad and sold domestically
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imports
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goods produced domestically and sold abroad
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exports
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a group of buyers and sellers of a particular good or service
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market
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a market in which there are many buyers and sellers so that each has a negligible impact on the market price
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competitive market
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the amount of a good that buyers are willing and able to purchase
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quantity demand
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the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
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law of demand
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a table that shows the relationship between the price of a good and the quantity demanded
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demand schedule
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a graph of the relationship between the price of a good and the quantity demanded
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demand curve
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the 2 axises on the demand curve are?
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price and quantity (of the product)
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a good for which, other things equal, an increase in income leads to an increase in demand
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normal good
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a good for which, other things equal, an increase in income leads to a decrease in demand
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inferior good
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two goods for which an increase in the price of one leads to an increase in the demand for the other
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substitutes
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two goods for which an increase in the price of one leads to a decrease in the demand for the other
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complements
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the amount of a good that sellers are willing and able to sell
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quantity supplied
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the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
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law of supply
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a table that shows the relationship between the price of a good and the quantity supplied
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supply schedule
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a graph of the relationship between the price of a good and the quantity supplied
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supply curve
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a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
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equilibrium
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the price that balances quantity supplied and quantity demanded
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equilibrium price
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the quantity supplied and the quantity demanded at the equilibrium price
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equilibrium quantity
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a situation in which quantity supplied is greater than quantity demanded
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surplus
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a situation in which quantity demanded is greater than quantity supplied
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shortage
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the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
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law of supply and demand
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a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants
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elasticity
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the measure of how much the quantity demanded of a good responds to a change in the price of that good
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price elasticity of demand
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percentage change in quantity demanded divided by the percentage change in price
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price elasticity of demand
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the amount paid bybuyers and received by sellters of a good, computed as the price of the good times the quantity sold
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total revenue
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the measure of how much of the quantity demanded of a good responds to a change in the consumers income
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income elasticity of demand
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a measure of how much the quantity demanded of one good responds to a change in the price of another good
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cross price elasticity of demand
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a measure of how much the quantity supplied of a good responds to a change in the price of that good
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price elasticity of supply
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the legal max on the price at which a good can be sold
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price ceiling
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a legal min on the price at which a good can be sold
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price floor
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the market value of all final goods and services produced within a country in a given period of time
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gross domestic product (GDP)
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spending by households on goods and services, with the exception of purchasing new housing
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consumption
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spending on capital equipment, inventories, and structures (includes household purchases of new housing)
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investment
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spending on goods and services by local state and federal governments
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government purchases
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spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports) Exports minus imports
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net exports
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the production of goods and services valued at current prices
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nominal GDP
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the production of goods and services valued at constant prices
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real GDP
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a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
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GDP deflator
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GDP is the sum of which 4 components?
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consumption, investment, government purchases and net exports
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a measure of the overall cost of the goods and services bought by a typical consumer
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consumer price index (CPI)
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the percentage change in the price index from the preceding period
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inflation rate
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a measure of the cost of a basket of goods and services bought by firms
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producer price index
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consumer price index (CPI) is measured:
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price of basket of goods/services in the current year divided by price of basket in base year times 100
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to find inflation rate in year 2:
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CPI in year2-CPI in year1 divided by CPI in year 1 times 100
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the automatic correction by law or contract of a dollar amount for the effects of inflation
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indexation
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the interest rate as usually reported without a correction for the effects of inflation
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nominal interest rate
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the interest rate corrected for the effects of inflation
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real interest rate
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the quantity of goods and services produced from each unit of labor input
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productivity
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the stock of equipment and structures that are used to produce goods and services
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physical capital
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the knowledge and skills that workers acquire through education, training and experience
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human capital
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the inputs into the production of goods and services that are provided by nature, such as land, rivers and mineral deposits
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natural resources
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society's understanding of the best ways to produce goods and services
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technological knowledge
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the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases
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diminishing returns
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the property wherby countries that start off poor tend to grow more rapidly than countries that start off rich
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catch-up effect
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