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82 Cards in this Set

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  • Back
Scarcity
The situation in which unlimited wants exceed the limited resources available to fulfill those wants
Economics
The study of choices people make to attain their goals, given their scarce resources
Economic model
Simplified versions of reality used to analyze real-world economic situations
Market
A group of buyers and sellers of a good or service and the instiution or arragement by which they come together to trade
Marginal analysis
Analysis that involves comparing marginal benefits and marginal costs
3 important economic ideas involving people and markets
1) People are rational
2) People resopond to economic incentives
3) Optimal Decisions are made at the margin
Trade-off
The idea that because of scarcity, producing more of one good or service means producing less of another good or service
The Economic Problem that every society must solve
1) what goods and services will be produced?
2)how will the goods and services be produced?
3) who will recieve the goods and services produced?
centrally planned economy
an economy in which the government decides how economic resources will be allocated
market economy
an economy in which the decisions of households and firms interacting in markets allocate economic resources
Mixed economy
An economy in which most economic decisions result from the interaction of buyers and sellers in markets, but in which the government plays a significant role in the allocation of resources
Productive efficiency
The situation in which a good or service is produced at the lowest possible cost
Allocative effieciency
A state of the economony in whcih production reflects consumer preferences: in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
Voluntary exchange
The situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction
Equity
The fair distribution of economic benefits
Steps of forming an economic model
1. decide on the assumptions to be used in develloping the model
2. Formulate a testable hypothesis
3. Uses economic data to test the hypothesis
4. revise the model if it fails toe xplain well the economic data
5. retain the revised model to help answer similar economic questions in the future.
economic variable
something measureable that can have different values, such as the wages of software programmers.
Positive Analysis
analysis concerned with what is
Normative Analysis
Analysis concerned with what ought to be.
Microeconomics
The study of how households and firms make coices how they interact in markets, and how the government attempts to influence their choices.
Macroeconomics
The sutdy of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Entrpreneur
someone who operates a business, bringing together the factors of production- labor, capital, and natural resources- to produce goods and services
Innovation
the practical application of an invention (or refers to any significant imporvement in a good or in the means of producing a good).
Technology
the processs a firm uses to turn inputs into outputs of goods and services
Firm
Organization that produces a good or service for profit

Company or business~ words are used interchangeably.
Goods
tangible merchandise
services
activities done for others
Revenue
Total amount received for selling a good or service
Found by multiplying price per unit by the # of units sold.
Opurtunity Cost
The highest value alternative that must be given up to engage in an activity
Profit
total revenue minus total cost
accounting profit vs. economic profit
accounting is purly numbers. Economic includes oppurtunity cost
Household
all the persons occupying a home
Factors of production or economic resources
labor, capital, human capital, natural resources (including land), entrepreurial ability.
Capital
Fiancial Capital- includes stocks and bonds
Physical Capital (econ)- includes manufactured goods that are used to produce other goods and services.
Human capital
the accumulated training and skills workers possess.
Production possibilites frontier
A curve showing the maximum attainable combinations of two products that may be produced with available resources
What points on a Production possiblities Fronteir are there
Technically efficient, ineffienct, and unattainable
Increasing marginal opportunity cost
The more resources already devoted to any activity, the smaller the payoff to devoting additional resources to that activity.
economic growth
the ability of the economy to produce increasing quantities of goods and services
Trade
The act of buying or selling
~increases both their production and consumption
Absolute advantage
The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources.
Comparative advantage
The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.
Product Markets
Markets for goods-such as computers- and services- such as medical treatment
Households are demanders and firms are suppliers
Factor Markets
Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability
Households are suppliers, firms are demanders
Circular- flow diagram
a model that illustrates how participants in markets are linked.
Free Market
A market with few government restrictions on how a good or service can be produced or sold, or on how a factor of production can be employed
Entrepreneur
Someone who operates a business, bringing together the factors of production- labr, capital, and natural resources= to produce goods and services
Property rights
The rights individuals or firms have to exclusive use of their property, including the right to buy or sell it.
Quantity demanded
The amount of a good or service that a consumer is willing and able to purchase at a given price.
demand schedule
A table showing the relationship between the price of a product and the quantity of the product demanded.
Demand curve
A curve that shows the relationship between the price of a product and the quantity of the product demanded.
Market demand
The demand by all the consumers of a given good or service
law of demand
holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease
Substitution Effect
The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods that are substitutes
Income effect
The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumer purchasing power
Ceteris paribus
"all else equal" . The requirement that when analyizing the relationship between 2 variables, such as price and quantity demanded, other variables must be held constant.
Substitutes
Goods and services that can be used for the same purpose
Complements
goods that are used together
Normal good
A good for which the demand increases as income rises and decreases as income falls
inferior good
A good for which the demand increases as income falls and decreases as income rises.
demographics
the characteristics of a population with respect to age, race, and gender
an ↑ in price of a substitute good will shift the demand curve...
to the right, consumers buy less of the subsitute good and more of this good
an ↑ in price of a complementary good will shift the demand curve...
left, consumers buy less of the complementary good and less of this good
an ↑ in income (when a good is normal) will shift the demand curve...
right consumers spend more of their higher income on the good
an ↑ in income (when a good is inferior) will shift the demand curve...
left, consumers spend less of their higher income on the good
an ↑ in taste for the good will shift the demand curve...
right, consumers are willing to buy a larger quantity of the good at every price
an ↑ in population will shift the demand curve...
right, additional consumers result in a greater quantity demanded at every price
an ↑ in expectant price of a good in the future will shift the demand curve...
right, consumers buy more of the good today to avoid the higher price in the future.
quantity supplied
the amount of a good or service that a firm is willing and able to supply at a given price
supply schedule
a table that shows the relatinonship between the price of a product and the quantity of the product supplied
supply curve
a curve that shows the relationship between the price of a product and the quantity of the product supplied
law of supply
holding everything else constant, increases in price cause increasees in quantity supplied, and decreases in price cause decreases in the quantity supplied
an ↑ in price of an input will shift the supply curve...
left, the costs of procuing the good rise
an ↑ in productivity will shift the supply curve...
right, the costs of producing the good fall
an ↑ in the price of a subsitute in production will shift the supply curve...
left, more of the substitue is produced and less of the good is
an ↑ in the expected future price of the goodwill shift the supply curve...
left, less of the good will be offered for sale today to take advantage of the higher price in the future
an ↑ in the number of firms in the market will shift the supply curve...
right, the additional firms result in a greater quantity supplied at every price
Technological change
change in the ability of a firm to produce a give level of output with a given quantity of inputs
Market equilibrium
a situation in which quantity demanded equals quantity supplied
competitve market equilbriu
a market equilibrium with many buyers and many sellers
surplus
a situation in which the quantity supplied is greater then the quantity demanded
shortage
a situatino in whcih the quantity demanded is greater than the quantity supplied