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12 Cards in this Set
- Front
- Back
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opportunity cost |
what you give up to get that item. In this case, the opportunity cost of going to a movie includes both the total cash expenditure needed to go to the movie plus the value of the time you gave up in order to watch the movie. |
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scarcity |
the limited nature of society's resources |
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rational people |
people who systematically and purposefully do the best they can to achieve their objectives |
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marginal change |
describe a small incremental adjustment to an existing plan of action. Recall that margin means “edge,” so marginal changes are alterations around the edges of what you are doing. |
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market economy |
an economy that allocatesresources through thedecentralized decisionsof many firms andhouseholds as theyinteract in markets forgoods and services |
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positive statements |
claims that attempt to describe the world as it is |
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normativestatements |
claims that attempt to prescribe how the world should be |
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Demand - |
shows the relationship between the price of the good and the quantity that buyers are willing -and- able to purchase |
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Factors that determine demand: Income |
Normal goods - income increases, the demand for normal goods increases (ex. clothes, entertainment, electronics, vacations)
Inferior goods - when income increases, the demand for inferior goods decreases (ex. Top ramen, cheap beer; more money, less cheap stuff) |
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Factors that determine demand: Prices of related goods
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Substitutes - can use one or the other; two different brands of the same type of good (Tide/Gain) A rise in the price of one good, increases the demand for the other good
Complementary goods - used together a rise in the price of one good, decreases the demand for the other good (chips and salsa); P of PB inc, demand of PB and Jelly decreases |
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Factors that determine demand: Expectations
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Expectations about future (prices) A buyer expect price will rise (inverse) in the future, the current demand increases (inverse) |
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Factors that determine demand: Number of buyers
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Individual demand - one buyer’s demand for a good Market demand - sum of all individual buyers More buyers -> demand increases |
