Microeconomics Ch. 1-4

Front 1

Scarcity

Back 1

The condition in which wants are forever greater than the available supply of time, goods, and resources.

Front 2

3 Categories of Resources

Back 2

Land, Labor, and Capital

Front 3

Land

Back 3

Any natural resource provided by nature.

(ex. plants, gas, oil, water, milk, etc.)

Front 4

Labor

Back 4

Mental/physical captivity for workers to provide goods and services.

Front 5

Capital

Back 5

Physical plant, machinery, and equipment used to produce other goods (and services) that don't satisfy wants.

Front 6

Resource

Back 6

The basic categories of inputs used to provide goods and services.

Front 7

Entrepreneurship

Back 7

A special form of resource and creative ability of individuals to seek profit by taking risks and combining resources to produce innovative products.

Front 8

3 Factors of Entrepreneurship

Back 8

Land, Labor, and Capital

Front 9

Economics

Back 9

The study of society chooses to allocate its scarce resources in order to satisfy unlimited wants/needs.

Front 10

2 Branches of Economics

Back 10

Macroeconomics and Microeconomics

Front 11

Macroeconomics

Back 11

Studies decision-making for the economy as a whole.

Front 12

Microeconomics

Back 12

Studies decision-making by a single individual household, firm, industry, or government.

Front 13

How do we study economics?

Back 13

Through model building.

Front 14

Economic Model

Back 14

A simplified description of reality used to understand and predict the relationship between variables.

Why? Because we want to forecast or predict the results of changes in variables.

Front 15

Economic Model Process

Back 15

1.) Identify problem

2.) Develop a model based on simplified assumptions

3.) Collect data, test model, and formulate a conclusion

Front 16

Ceteris Paribus

Back 16

All other things remain unchanged or holding all other things constant.

(ex. Health, time of day, etc.)

Front 17

Correlation

Back 17

There's a relationship between two variables.

Price goes up, demand goes down.

Price goes down, demand goes up.

* Correlation does NOT imply causation.

Front 18

Positive Economics

Back 18

Economic analysis limited to statements that are verifiable.

(ex. When ticket prices go down, popcorn sales increase.)

Front 19

Normative Economics

Back 19

An analysis based on a value judgement.

(ex. It is a bad idea to lower ticket prices because ticket revenue will go down.)

Front 20

3 Fundamental Economic Questions

Back 20

1.) What to produce?

2.) How to produce?

3.) For whom to produce?

Front 21

Opportunity Cost

Back 21

The best alternative sacrifice for a chosen alternative "the next best thing".

Front 22

Marginal Analysis

Back 22

An examination of the additional benefits of an activity compared to the additional cost of that activity.

When the marginal benefit is greater than the marginal cost, we will continue the activity.

Front 23

Production Possibilities Curve

Back 23

Shows the maximum combination of two outputs that an economy can produce, given its available resources and technology.

3 Assumptions

1.) Fixed resources

2.) Fully employed resources

3.) Technology remains unchanged

Front 24

Inefficient

Back 24

Resources are not fully employed.

Front 25

Unattainable

Back 25

Given resources and technology, we cannot produce outside the curve.

Front 26

How can we grow our economy?

Back 26

1.) Increase in resources.

2.) Technological change.

Front 27

Demand

Back 27

It represents choice-making behavior of buyers.

Front 28

Law of Demand

Back 28

There is an inverse relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period.

Front 29

Demand Curve

Back 29

A curve that shows quantities of a good or service that people are willing and able to buy at different prices.

Front 30

Non-price determinants of demand (aka demand shifters)

Back 30

1.) # of Buyers

2.) Tastes and Preferences

3.) Income

4.) Expectations of Buyers

5.) Price of related goods

Front 31

Technology

Back 31

The body of knowledge applied to how goods are produced.

Front 32

Law of Increasing Opportunity Costs

Back 32

The principle that the opportunity cost increases as production of one output expands.

Front 33

Economic Growth

Back 33

The ability of an economy to produce greater levels of output, represented by an outward shift of its production possibilities curve.

Front 34

Investment

Back 34

The accumulation of capital that is used to produce goods and services (ex. factories, machines, and inventories).

Front 35

Change in Quantity demanded

Back 35

A movement between points along a stationary demand curve, ceteris paribus.

Front 36

Change in Demand

Back 36

An increase (rightward shift) or decrease (leftward shift) in the quantity demanded at each possible price.

Front 37

Normal good

Back 37

Any good for which there is a direct relationship between changes in income and its demand curve.

Front 38

Inferior good

Back 38

Any good for which there is an inverse relationship between changes in income and its demand curve.

Front 39

Substitute good

Back 39

A good that competes with another good for consumer purchases.

Front 40

Complementary good

Back 40

A good that is jointly consumed with another good.

Front 41

Law of Supply

Back 41

The principle that there is a direct relationship between the price of a good and the quantity sellers are willing and able to offer for sale in a defined time period, ceteris paribus.

Front 42

Supply

Back 42

A curve/schedule showing the various quantities of a product sellers are willing to produce and offer for sale at possible prices during a specified period of time, ceteris paribus.

Front 43

Change in Quantity supplied

Back 43

A movement between points along a stationary supply curve, ceteris paribus.

Front 44

Change in Supply

Back 44

An increase (rightward shift) or decrease (leftward shift) in the quantity supplied at each possible price.

Front 45

Market

Back 45

Any arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged.

Front 46

Surplus

Back 46

A market condition existing at any price where the quantity supplied is greater than the quantity demanded.

Front 47

Shortage

Back 47

A market condition existing at any price where the quantity supplied is less than the quantity demanded.

Front 48

Equilibrium

Back 48

A market condition that occurs at any price at which the quantity demanded and the quantity supplied are equal.

Front 49

Price System

Back 49

A mechanism that uses the forces of supply and demand to create an equilibrium through rising and falling prices.

Front 50

Price Ceiling

Back 50

A legally established maximum price a seller can charge.

Front 51

Price Floor

Back 51

A legally established minimum price a seller can be paid.

Front 52

Market Failure

Back 52

A situation in which market equilibrium results in too few or too many resources being used in the production of a good or service.

Front 53

Externality

Back 53

A cost or benefit imposed on people other than the consumers and producers of a good or service.

Front 54

Public Good

Back 54

A good or service with two properties: (1) users collectively consume benefits, and (2) there is no way to bar people who do not pay (free riders) from consuming the good or service.