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139 Cards in this Set
- Front
- Back
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Economic Perspective
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way of economic thinking
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Economics
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the social science concerned with how individuals, institutions, and society make optimal choice under conditions of scarcity.
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Opportunity Cost
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To obtain more of one thing, society forgoes the opportunity of getting the next best thing.
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Economics assumes that human behavior reflects "??"
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Rational self-interest
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the pleasure, happiness, or satisfaction obtained from consuming a good or service
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utility
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comparisons of marginal benefits and marginal costs, usually for decision making.
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Marginal Analysis
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To economists, "marginal" means what?
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extra
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Steps of the Scientific Method
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1) Observing behavior/Outcome
2) Formulate Hypothesis 3)Test Hypothesis 4) Accept/Reject Hypothesis 5) Continue to Test |
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A very well-tested and widely accepted theory
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Economic Principle
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As price falls, consumers want to buy _____ of a product
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more
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The assumption that factors other than those being considered do not change
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other-things-equal assumption
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the part of economics concerned with decision making y individual customers, workers, households, and firms.
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Microeconomics
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examines either the economy as a whole or its basic subdivisions such as government, household, and business sectors
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Macroeconomics
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a collection of specific economic units treated as if they were one unit
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Aggregate
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focuses on facts and cause-and-effect relationships.
(What Is) |
positive economics
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incorporates value judgements about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal.
(What Ought To Be) |
normative economics
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the need to make choices because economics wants exceed economic means
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Economizing Problem
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a schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income.
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Budget Line
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Resource Categories
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1) Land
2) Labor 3) Capital 4) Entrepreneurial Ability |
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The four resource categories combined to produce goods and services are called what?
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factors of production
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Assumptions for macroeconomic model of production possibilities.
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1) Full Empllyment
2) Fixed Resources 3) Fixed Technology 4) Two Goods - Consumer Goods - Capital Goods |
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Products that satisfy our wants directly
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Consumer Goods
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Products that satisfy our wants indirectly by making possible more efficient production of consumer goods
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Capital Goods
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A curve that displays the different combinations of goods and services that society can produce in a fully employed economy, assuming all fixed availability of supplies of resources and fixed technology.
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Production Possibilities Curve
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On a ppc ___ are on the vertical axis, and ____ are on the horizontal axis.
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output of capital goods
output of consumer goods |
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As the production of a particular good increases, the opportunity cost of producing an additional unit rises
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Law of Increasing Opportunity Costs
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A larger total output
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Economic Growth
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An Economic Growth is a result of what 3 things?
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1) increase in supplies of resources
2) improvements in resource quality 3) technological advances |
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economies w/ no growth that must sacrifice one good to obtain more of another
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static
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economies that are growing and can have larger quantities of both goods
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dynamic
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____&_____ have the same effect as having more and better resources or discovering improved production techniques
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Specialization and Trade
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3 Elements of the economic perspective
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1) scarcity and choice
2) purposeful behavior 3) marginal analysis |
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Positive Economics deals with ____, while normal economics deal with _____?
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facts
value judgements |
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______ __ enables a nation to obtain more goods from its limited resources than its production possibilities curve indicates
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International Trade
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A particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem
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Economic System
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System in which the government owns most property resources and economic decision making occurs through a central economic plan
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Command System
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System characterized by the private ownership of resources and the use of markets and prices to coordinate and direct economic activity.
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Market System
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Places where buyers and sellers come together to buy and sell goods/services/resources.
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Market
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Ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets.
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Freedom of Enterprise
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Enables owners to employ or dispose of their property and money as they see fit.
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Freedom of Choice
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The motivating force of the various economic units as they express their free choices.
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Self-Interest
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The market system depends on ____ among economic units.
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Competition
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Using the resources of an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services
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Specialization
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Human Specialization is called what?
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Division of Labor
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Specialization does what 3 things?
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1) makes use of differences in ability
2) fosters learning by doing 3) saves time |
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Money's first and foremost function is what?
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A Medium of Exchange
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Swapping Goods for other Goods
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Bartering
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A convenient social invention to facilitate exchanges of goods and services
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Money
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Consumers determining the production of goods
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Consumer Sovereignty
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Competition eliminates who?
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high cost sellers
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The amount of income a business has depends on what 2 things?
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1) the quantities of the property and human resources they supply
2) the prices those resources command in the resource market |
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The creation of new products and production methods completely destroys the market position of firms that are wedded to existing products and older ways of doing business
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Creative Destruction
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Illustrates the flows of goods and services, resources, and money.
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Circular Flow Diagram
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a business owned and managed by a single person
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sole proprietorship
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a business in which 2 or more individuals agree to won and operate a business together.
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Partnership
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An independent legal entity that can acquire resources, own assets, produce and sell products, incur debts, extend credit, sue and be sued, and otherwise engage in any legal business activity.
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Corporation
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The place where goods and services produced by business are bought and sold.
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Product Market
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the box which represents households sell of resources to business.
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Resource Market
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a schedule or curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time.
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Demand
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As price falls quantity demand rises, as price rises quantity demand falls
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Law of Demand
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Peoples satisfaction with things the first to second time falling is called what?
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Diminishing Marginal Utility
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Indicates that a lower price increases the purchasing power of a buyers money income, enabling the buyer to purchase more of the product than before.
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Income Effect
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Suggests that at a lower price buyers have the incentive to substitute what is now a less expensive product for other products that are now relatively more expensive
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Substitution Effect
pg. 49 |
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Factors that are assumed to be constant when a demand curve is drawn.
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Determinants of Demand
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The 5 Determinants of Demand
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1) Consumers' Preferences
2) Number of buyers in the market 3) Consumers' incomes 4) the prices of related goods 5) consumer expectations |
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Products whose demand varies directly with money income
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Normal Goods (superior goods)
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Goods whose demand varies inversely with money income
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Inferior Goods
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A good that can be used in place of another good
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Substitute Good
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A good that is used together with another good
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Complementary Goods
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A movement from one point to another point - from one price quantity combination to another - on a fixed demand curve
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Change in Quantity Demanded
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As price rises, the quantity supplied rises; as price falls, the quantity supplied falls
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Law of Supply
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To a supplier, price represents what?
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revenue
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The added cost of producing one more unit of output
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Marginal Cost
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The Supply Curve slopes _____
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Upward
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The Demand Curve slopes ___
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Downward
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The 6 determinants of Supply
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1) resource prices
2) technology 3) taxes and subsidies 4) prices of other goods 5) producer expectations 6) number of sellers in the market |
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Movement from one point to another on a fixed supply curve.
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Change in Quantity Supplied
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The price where the intentions of buyers and sellers match.
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Equilibrium Price
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The quantity at which the intentions of the buyers and sellers match, so that the quantity demanded and the quantity supplied are equal.
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Equilibrium Quantity
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Producing more than consumers are willing to purchase.
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Surplus
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When quantity demanded exceeds quantity supplied at a price.
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Shortage
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The production of any particular good in the least costly way
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Productive Efficiency
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The particular mix of goods and services most highly valued by society (minimum-cost production assumed)
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Allocative Efficiency
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Supply Increase; Demand Decrease
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Decrease Price
Equilibrium Quantity Decrease |
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Supply Decrease; Demand Increase
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Increase Price
Increase Equilibrium Quantity |
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Supply Increase; Demand Increase
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Price depends on whether supply or demand is greater
Increase Equilibrium Quantity |
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Supply Decrease; Demand Decrease
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If decrease in supply is greater, decrease in demand, price will rise; if reverse price will fall
Equilibrium Quantity Will Fall |
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Sets the maximum legal price a seller may charge for a product or service.
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Price Ceiling
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A minimum price fixed by the government.
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Price floor (wheat) pay higher taxes because of floor
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price ceiling is on gasoline
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derrek
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If quantity supplied is above quantity demanded above the price ceiling results in a what?
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Surplus
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If quantity supplied is below the quantity demanded, and is below the price ceiling there is a what?
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Shortage
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If actual is above the price ceiling it is a _____
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shortage
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if actual is below the price floor it is a _____
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Surplus
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The responsiveness (or sensitivity) of consumers to a price change is measured by a product's what?
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price elasticity of demand
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Products with modest price changes cause very large changes in the quantity purchased are said to be what sort of elastic
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relatively elastic or simply elastic (restaurant meals)
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Products whose substantial price change causes only a small change in the amount purchased are said to have what sort of elasticity?
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relatively inelastic or simply inelastic (toothpaste)
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stuff you dont need is elastic
shit you need is inelastic |
boom
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Demand is ____ if a specific percentage change in price results in a larger percentage change in quantity demanded
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elastic
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Percentage change in price and the resulting percentage change in quantity demanded are the same
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Unit Elastic
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An extreme situation in which a price change results in no change whatsoever in the quantity demanded is
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perfectly inelastic
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An extreme case in which a small price reduction causes buyers to increase their purchases from zero to all they can obtain, the elasticity coefficient is infinite, and economists say demand is ______
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perfectly elastic
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The total amount the seller receives from the sale of a product in a particular time period.
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Total Revenue
TR= P x Q |
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Total Revenue Test
If total revenue changes in the opposite direction from price, demand is _____ |
elastic
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Total Revenue Test
If total revenue changes in the same direction as price, demand is _____ |
Inelastic
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If demand is inelastic, a price decrease will ____ total revenue
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Reduce
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If demand is inelastic, a price increase will ______ total revenue
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Increase
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In the special case of unit elasticity, an increase or decrease in price leaves total revenue ________
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unchanged
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The relatively small percentage change in quantitiy divided by the relatively large percentage change in price results in a(n) ___
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inelastic demand
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The relatively large percentage change in quantity divided by the relatively small change in price yields a(n)
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elastic demand
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the larger the Substitutability of a product causes the price elasticity of demand to be ____
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greater
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The higher the price of a good relative to consumers' incomes, the ____ the price elasticity of demand.
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greater
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The more a good is considered to be "luxury", the price elasticity of demand is _____
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greater
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The longer the time period under consideration, the product demand is ____ elastic
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more
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Short-run is
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inelastic
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long run is
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elastic
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If taxes are raised on a product with an elastic demand, the product will ____ revenue
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lose
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If the quantity supplied by producers is relatively responsive to price changes, supply is _____
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elastic
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If the quantity supplied by producers is relatively insensitive to price changes, supply is _____
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inelastic
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The degree of price elasticity of supply depends on how easily producers can shift resources between _____ uses.
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alternative
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The easier and more rapidly producers can shift resources between alternative uses, the ___ the price elasticity of supply.
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greater
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The period that occurs when the time immediately after a change in market price is too short for producers to respond with a change in quantity supplied
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market period
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If supply is fixed the price elasticity of supply is ___
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inelastic
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A period of time too short to change plant capacity but long enough to use the fixed-sized plant more or less intensively
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The Short Run
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A time period long enough for firms to adjust their plant sizes and for new firms to enter the industry
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long run
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Supply shows a ____ relationship between price and amount supplied; the supply curve is up-sloping.
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direct/positive
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Measures how sensitive consumer purchases of one product are to a change in the price of some other product.
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Cross Elasticity of Demand
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The cross elasticity of demand is positive, meaning that sales of X move in the same direction as a change in the price of Y, then X and Y are _______
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Substitue Goods
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When the cross elasticity is negative, we know that X and Y "go together"; an increase in the price of one decreases the demand for the other. So the two are _____ goods.
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Complementary
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The larger the negative cross-elasticity coefficient, the ____ is the complementary between the two goods.
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greater
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A zero or near-zero cross elasticity suggests that two products being considered are _____ goods.
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Independent
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If the cross elasticity between 2 products (Coke and Pepsi) is high, the two products strong ___ of each other.
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Substitutes
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Measures the degree to which consumers respond to a change n their incomes by buying more or less of a particular good.
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Income Elasticity of Demand
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If the Income-Elasticity coefficient is positive, meaning that more goods are demanded as incomes rise, the goods are ____ goods.
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Normal Goods
pg. 88 |
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A negative income-elasticity coefficient designates a(n) ______ good.
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Inferior
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Determinants of Price Elasticity of Demand
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1) Substitutability
- larger substitute goods/ greater elasticity 2) Proportion of Income - Higher price relative to income/ greater elasticity 3) Luxury's vs. Necessity - Greater the Luxury/ Greater Price Elasticity of Demand 4) Time - More Time/ More elasticity |
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Coefficients of income elasticity of demand provide _____ into the economy.
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Insights
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Products with relatively high income elasticity coefficients, such as cars, housing, and restaurant meals, are generally hit _____ by recessions
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hardest
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Products with low or negative income elasticity coefficients are ____ affected compared to high income elasticity coefficients during a recession.
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less
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