Micro Test 1

Front 1

positive

Back 1

the study of "what is" among ecomic relationships. CAN be proven either true or false

Front 2

normative

Back 2

judgments about "what ought to be." They CANNOT be proven true or false.
ex. the inflation rate should be lower

Front 3

Four pitfalls

Back 3

1) violation of ceteris paribuus
2)good intentions do not guarantee desirable outcomes
3)fallacy of composition
4)association doesn't mean causation

Front 4

ceteris paribus

Back 4

"other things constant"

Front 5

fallacy of composition

Back 5

what is true for the individual is true for the group

Front 6

trade

Back 6

mutual gain is the foundation of trade. value can be created by exchanged that move goods to individuals who value them more

Front 7

transaction costs

Back 7

the time, effort, and other resources needed to dearch out, negotiate, and consummate an exchange

Front 8

middle man

Back 8

a person who buys and sells, or arranges trades. helps reduce transaction costs
ex. the realty agent who helps you find a house

Front 9

property rights

Back 9

the right use, control, and obtain benefits from a good or service. Involve the right to exclusive use, legal protection against invaders, and the right to transfer to another

Front 10

property rights and incentives

Back 10

property rights is key to prosperity b/c it provides ppl. w/ a strong incentive to take care of their things

Front 11

what shifts the PPC outward?

Back 11

-an increase in the economy's resource base
-advancements in technology
-improvement in the rules(laws, policies)
-working harder and giving up current leisure

Front 12

specialization and division of labor increase or decrease output?

Back 12

increase

Front 13

comparative advantage: how to calculate

Back 13

if you have wheat and cloth and it asks you the cost of wheat then: cloth/wheat

Front 14

law of comparative advantage

Back 14

the proposition that the joint output of trading partners will be greatest when each good is produced by the low opportunity cost producer. specialization = good

Front 15

the economic pie is?

Back 15

variable, not fixed

Front 16

market organization

Back 16

a method or organization htat allows for unregulated prices and the decentralized decisions of private property owners to resolve the basic economic problems. sometimes called capitalism

Front 17

political organization

Back 17

involves the use of collective decison making(government) to decide what, how, and for whom goods and services will be produced

Front 18

law of demand

Back 18

the inverse relationship between the price of a good and the quantity consumers are willing and able to purchase

Front 19

consumer surplus

Back 19

the area below the demand curve but above the actual price paid. The difference between the amount consumers are willing to pay and the amount they have to pay for a good. lower market prices increase the amount of consumer surplus

Front 20

elastic demand

Back 20

-change in price leads to a large change in quantity demanded
-deman will be elastic when good substitutes for the good are readily available

Front 21

inelastic demand

Back 21

-a change in price leads to only a small change in quantity demanded
-demand will be inelastic when few, if any, good substitutes are available

Front 22

demand curve shifters

Back 22

-change in consumer income
-change in # of consumers
-change in price of related goods
-change in expectations
-demographic changes
-changes in consumer taste

Front 23

change in price causes. . .

Back 23

a change in QUANTITY demanded

Front 24

economic cost

Back 24

the cost of all resources used in production

Front 25

accounting cost

Back 25

often ignores the opportunity costs of resources owned by the firm

Front 26

law of supply

Back 26

there is a positive relationship between the price of a product and the amount of it that will be supplied

Front 27

producer surplus

Back 27

difference between the lowest price a supplier will accept to produce the good and the price they actually get

Front 28

supply curve shifters

Back 28

-changes in resource prices
-changes in technology
-elements of nature and political disruptions
-changes in taxes

Front 29

1) Qs > Qd
2) Qs = Qd
3) Qs < Qd

Back 29

1) excess supply, downward pressure on price
2) balance, equilibrium
3) excess demand, upward pressure on the price

Front 30

consumer surplus + producer surplus =

Back 30

net gains

Front 31

invisible hand

Back 31

the tendency of the market prices to direct individuals pursuing their own self interest into productive activities that also promote the economic well being of society

Front 32

price ceiling

Back 32

establishes a maximum price that sellers are legally permitted to charge
ex. rent control

Front 33

direct effect of a price ceiling

Back 33

shortage - the Qd > Qs

Front 34

indirect effect of a price ceiling

Back 34

quality deterioration and changes in other non-price factors that are favorable to sellers and infavorable to buyers

Front 35

price floor

Back 35

establishes a minimum legal price for the good or service
ex. minimum wage

Front 36

direct effect of a price floor

Back 36

surplus - sellers will want to supply a larger quantity than buyers are willing to purchase

Front 37

indirect effects of a price floor

Back 37

changes in non-price factors that are favorable to buyers and unfavorable to sellers

Front 38

black markets

Back 38

a market that operates outside the legal system. have a higher incidence of defective products, higher profit rates, and greater use of violence to resolve disputes

Front 39

statutory incidence

Back 39

the legal assignment of who pays a tax

Front 40

actual incidence

Back 40

the actual burden of a tax

Front 41

deadweight loss of taxation

Back 41

the loss of the gains from trade as a result of the imposition of a tax. losses to both buyers and sellers. sometimes referred to as "excess burden of the tax"

Front 42

elasticity and incidence of a tax

Back 42

- as supply becomes more inelastic, more of the burden will fall on the sellers
- as demand becomes more inelastic, more of the burden will fall on the buyers

Front 43

as elasticity of either the supply or demand rises, the deadweight loss. . .

Back 43

rises

Front 44

subsidy

Back 44

a payment to either the buyer or seller of a good or service, usually on a per unit basis

Front 45

1) when supply is inelastic relative to D, then ____ will derive most of the benefits of a subsidy
2) when demand in inelastic relative to S, the ___ will reap most of the benefits

Back 45

1) sellers
2) buyers

Front 46

two major functions of the government

Back 46

1) protective function: protection of indiv. and their property against invasion of others
2) productive function - the production of goods and services that cannot easily be provided through private markets

Front 47

four reasons why the invisible hand might fail

Back 47

1) lack of competition
2) externalities
3) public goods
4) poor information