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52 Cards in this Set

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  • Back
scarcity principle or non free lunch principle
we have boundless needs and wants, the resources available to us are limited. so having more of one good thing usually means having less of another
cost benefit principle
an individual or firm, or a society should take an action if and oly if the extra benefits from taking the action are at least as great as the extra costs
rational
well defined goals and try to fulfill them as best they can
economic surplus
from taking any action is the benefit of taking that action minus its cost
opportunity cost
the value of the next best alternative that must be forgone in order to undertake the activity
sunk cost
a cost that is beyond recovery at the moment a decision must be made
marginal cost
the increase in total cost that results from carrying out one additional unit of an activity
marginal benefit
the increase in total benefit that results from carrying out one additional unit of activity
average cost
total cost of undertaking n units of an activity divided by n
microeconomics
study of individual choice under scarcity and its implications for the behavior of prices and quantities
macroeconomics
study of the performance of national economics and the policies that governments use to try to improve performances
absolute advantage
one person has an absolute advantage over another if he or she takes fewer hours to perform a task than the other person
comparative advantage
one person has a comparative advantage over another if his or her opportunity cost of performing a task is lower than the other persons opportunity
production possibilities curve
a graph that describe the maximum amount of one good that can be produced for every possible level of production
attainable point
any combination of goods that can be produced using currently available resources
unattainable point
any combination of goods that cannot be produced using currently
inefficient point
any combination of goods for which currently available resources enable an increase in the production of one good without a reduction in the production of another
efficient point
any combination of goods for which currently available resources do not allow an incrase in the production of one good without a reduction in the production of the other
market
the market for any good consists of all buyers or sellers of that good
demand curve
a schedul or graph showing the quanitity of a good that buyers wish to buy at each price
substitution effect
the change in the quanitity demanded of a good that results because buyers switch to substittues when the price of the good changes
income effect
the change in the quantity demanded of a good that results because a change in the price of a good changes the buyers purchasing power
buyers reservation price
the largest dollar amount the buyer would be wiling to pay for a good
supply curve
a curve or schedule showing the quantity of a good that sellers wish to sell at each price
sellers reservation price
the smallest dollar amount for which a seller would be willing to sell an additional unit, generally equal to marginal cost
equilibrium
a system is in equilbrium when there is no tendency for it to change
equilibrium price and quantity
the values of price and quantity for which quantity supplied and quantity demanded are equal
market equilibrium
occurs in a market when all buyers and sellers are satisfied with their respective quantities at t he market price
excess supply
the amount by which quantity supplied exceeds quantity demanded when the price of a good exceeds the equilbrium price
excess demand
the amount by which quantity demanded exceeds quantity supplied when the price of a good lies below the equilibrium price
price ceiling
a mazimum allowable price, specified by law
change in the quantity demanded
a movement along the demand curve that occurs in response to a change in price
change in demand
a shift of the entire demand curve
change in supply
a shift of the entire supply curve
change in the quantity supplied
a movement along the supply curve that occurs in response to a change in price
complements
two goods are complements in consumption of an increase in the price of one causes a leftward shift in the demand curve for the other or if a decrease causes a rightward shit
substitutes
if an incrase in the price of one cuases a rightwards shift in the demand curve for the other or decrease causes a leftward shift
normal good
one whose demand curve shifts rightward when the incomes of a buyer increase and leftward when the incomes of buyers decrease
inferior good
one whose demand curve shifts leftward when the incomes of buyers increase and rightward when the incomes of buyers decrease
buyers surplus
the difference between the buyers reservation price and the pricer he or she actually pays
sellers surplus
the difference between the price received by the seller and his or her recervation priceq
total surplus
the difference between the buyers reservation price and the sellers reservation price
socially optimal quantity
the quantity of a good that results in the maximum possible economic surplus from producing and consuming the good
economic efficiency
occurs when all goods and services are produced and consumed at their respective socially optimal levels
macroeconomic policies
government actions designed to affect the performance of the economy as a whole
average labor productivity
output per employed worker
monetary policy
determination of the nations money supply
fiscal policy
decisions that determine the governments budget, including the amount and composition of government expenditures and government revenues
structural policy
government policies aimed at changing the underlying structure or institutions of the nations economy
postitive analysis
addreses the economic consequences of a particular even or policy not whether those consedquences are desirable
normative analysis
addresses the question of whether a policy should be used , inevitably involved the values of the person doing the analysis
aggregation
the adding up of individual economic variables to obtain economywide totals