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78 Cards in this Set
- Front
- Back
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inflation
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an increase in the overall level of prices in the economy
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market failure
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a situation in which a market left on its own fails to allocate resources efficiently
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Economics
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the study of how society manages its scarce resources
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incentive
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something that induces a person to act
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productivity
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the quantity of goods and services produced from each unit of labor input
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opportunity cost
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whatever must be given up to obtain some item
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externality
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the impact of one person’s actions on the well-being of a bystander
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Rational people
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people who systematically and purposefully do the best they can to achieve their objectives
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Scarcity
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the limited nature of society’s resources
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market economy
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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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business cycle
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fluctuations in economic activity, such as employment and production
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marginal change
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a small incremental adjustment to a plan of action
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Efficiency
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the property of society getting the most it can from its scarce resources
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market power
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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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Equality
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the property of distributing economic prosperity uniformly among the members of society
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property rights
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the ability of an individual to own and exercise control over scarce resources
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Positive statements
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claims that attempt to describe the world as it is
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circular-flow diagram
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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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production possibilities frontier
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a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
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Microeconomics
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the study of how households and firms make decisions and how they interact in markets
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Macroeconomics
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the study of economy-wide phenomena, including inflation, unemployment, and economic growth
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Normative statements
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claims that attempt to prescribe how the world should be
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opportunity cost
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whatever must be given up to obtain some item
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comparative advantage
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the ability to produce a good at a lower opportunity cost than another producer
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absolute advantage
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the ability to produce a good using fewer inputs than another producer
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imports
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goods produced abroad and sold domestically
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exports
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goods produced domestically and sold abroad
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law of supply
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the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises
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inferior good
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a good for which, other things being equal, an increase in income leads to a decrease in demand
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law of supply and demand
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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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complements
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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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demand schedule
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a table that shows the relationship between the price of a good and the quantity demanded
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market
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a group of buyers and sellers of a particular good or service
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substitutes
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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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law of demand
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the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises
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demand curve
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a graph of the relationship between the price of a good and the quantity demanded
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shortage
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a situation in which quantity demanded is greater than quantity supplied
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supply curve
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a graph of the relationship between the price of a good and the quantity supplied
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equilibrium price
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the price that balances quantity supplied and quantity demanded
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quantity demanded
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the amount of a good that buyers are willing and able to purchase
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surplus
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a situation in which quantity supplied is greater than quantity demanded
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quantity supplied
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the amount of a good that sellers are willing and able to sell
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normal good
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a good for which, other things being equal, an increase in income leads to an increase in demand
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equilibrium quantity
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the quantity supplied and the quantity demanded at the equilibrium price
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competitive market
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a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
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supply schedule
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a table that shows the relationship between the price of a good and the quantity supplied
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equilibrium
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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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price elasticity of supply
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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, computed as the percentage change in quantity supplied divided by the percentage change in price
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price elasticity of demand
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a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
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total revenue
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the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold
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income elasticity of demand
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a measure of how much the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change in quantity demanded divided by the percentage change in income
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elasticity
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a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants
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cross-price 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, computed as the percentage change in quantity demanded of the first good divided by the percentage change in price of the second good
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price floor
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a legal minimum on the price at which a good can be sold
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tax incidence
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the manner in which the burden of a tax is shared among participants in a market
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price ceiling
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a legal maximum on the price at which a good can be sold
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willingness to pay
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the maximum amount that a buyer will pay for a good
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cost
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the value of everything a seller must give up to produce a good
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Producer surplus
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the amount a seller is paid for a good minus the seller’s cost of providing it
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welfare economics
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the study of how the allocation of resources affects economic well-being
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Consumer surplus
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the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
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deadweight loss
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the fall in total surplus that results from a market distortion, such as a tax
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world price
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the price of a good that prevails in the world market for that good
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tariff
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tax on goods produced abroad and sold domestically
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transaction costs
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the costs that parties incur in the process of agreeing to and following through on a bargain
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corrective taxes
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a tax designed to induce private decision makers to take account of the social costs that arise from a negative externality
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Coase theorem
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the proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own
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internalizing the externality
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altering incentives so that people take account of the external effects of their actions
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externality
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the uncompensated impact of one person’s actions on the well-being of a bystander
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Public goods
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goods that are neither excludable nor rival in consumption
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cost–benefit analysis
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a study that compares the costs and benefits to society of providing a public good
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Private goods
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goods that are both excludable and rival in consumption
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Tragedy of the Commons
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a parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole
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Club goods
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goods that are excludable but not rival in consumption
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Common resources
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goods that are rival in consumption but not excludable
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rivalry in consumption
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the property of a good whereby one person’s use diminishes other people’s use
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free rider
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a person who receives the benefit of a good but avoids paying for it
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excludable
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the property of a good whereby a person can be prevented from using it
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