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70 Cards in this Set
- Front
- Back
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Opportunity Cost
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The cost incurred when an item or activity is chosen
(The trade off involved in an economic decision-making process) |
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Rational People
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People who systematically and purposefully do the best they can to achieve their objectives.
[Is this an oxymoron?] |
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Marginal Changes
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small incremental adjustments to a plan of action [usually symbolized by a change of one unit] marginal benefit/cost
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Law of Comparative Advantage
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The ability to produce something at a lower opportunity cost than other producers face
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Centrally Planned Economy
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Government decides upon the allocation of scarce rescources, what will be produced, how much, for whom, and the price
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Market Economy
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An economy that allocated resources through the decentralized decisions of many firms and households as they interact in the market for goods and services (Supply and Demand dictate Price).
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Property rights
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The ability of an individual to own and exercise control over scarce resources (government laws protect this-or should).
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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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Allocation of resources
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The governments duty to see that everyone has a basic standard of living.
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Productivity
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The quantity of goods and services produced from each unit of labor input. Policy makers must prepare the next generation for the future (education, technology, or capital investment).
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Inflation
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An increase in the overall level of prices in the economy
• Goal around the world: keep inflation low. • What causes inflation? Growth in the quantity of money. The present? |
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Gresham’s Law
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Bad money drives out good
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Business Cycle
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Fluctuations in economic activity, such as employment and production (the ups and downs in the economy over a period of time)
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Model 1: The circular flow diagram
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A visual model of the economy that shows how dollars flow through markets among households and firms
Firms: produce goods and services (inputs, or factors of production) Households: own the factors of production and consumer goods produces by the firm The households and firms interact with each other in two types of markets: markets for goods and services, and markets for factors of production. |
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Model 2: The 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.
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Efficiency
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When all factors or production are being used fully and efficiently (anywhere on the PPF curve)
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Inefficient
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Means your not using all your resources to their full potential
• not efficiently doing something |
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Unobtainable
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Stuff you can’t get or can’t do.
• Only time this can be achieved is during war. |
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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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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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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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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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Positive Statements
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Claims that attempt to describe the world as it is. [Have facts to prove or disprove the statement]
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Normative Statements
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Claims that attempt to prescribe how the world should be. [May involve some facts, but are based on theory; involve value judgments]
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Demand
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A relationship between the price of a good and the quantity that consumers are willing and able to buy during a given period (o.t.c.) “Other things constant”
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Law of Demand
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The quantity of a good demanded during a given period relates to inversely to its price (o.t.c.)
•The higher the price, the smaller the quantity demanded • The lower the price, the larger the quantity demanded |
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Substitution Effect of a Price Change
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When the price of a good falls, consumers substitute that good for other goods, which become relatively more expensive.
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Money Income
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The number of dollars a person receives per period, such as $400 per week
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Real Income
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Income measured in terms of the goods and services it can buy.
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Income Effect Of A Price Change
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A fall in the price of a good increases consumers real income making consumers more able to purchase goods; for a normal good, the quantity demanded increases.
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Demand Curve
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A curve showing the relation between the price of a good and the quantity demanded during a given period, (o.t.c.)
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Quantity Demanded
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The amount demanded at a particular price, as reflected by a point on a given demand curve.
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Market Demand
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Sum of the individual demands of all consumers in the market.
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Normal Good
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A good, such as new clothes, for which demand increases, or shifts rightward, as consumer incomes rise.
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Inferior Good
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A good, such as used clothes, for which demand decreases, or shifts leftward, as consumer incomes rise.
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Substitutes
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Goods, such as Coke and Pepsi, that are related in such a way that an increase in the price of one shifts the demand for the other rightward.
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Complements
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Goods, such as milk and cookies, that are related in such a way that an increase in the price of one shifts the demand for the other leftward.
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Tastes
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Consumer preferences; likes and dislikes in consumption; assumed to be constant along a given demand curve.
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Movement Along A Demand Curve
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Change in quantity demanded resulting from a change in the price of the good, (o.t.c.)
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PRINCIPLE 1
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People face trade-offs
-Families face trade-offs -The “Guns and Butter” argument |
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PRINCIPLE 2
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The Cost of Something is What You Give up to Get It
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PRINCIPLE 3
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Rational People think at the margin
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PRINCIPLE 4
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People Respond to Incentives
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PRINCIPLE 5
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Trade can make everyone better off
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PRINCIPLE 6
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Markets are usually a good way to organize economic activity.
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PRINCIPLE 7
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Government can sometimes improve market outcomes
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PRINCIPLE 8
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A country’s standard of living depends on its ability to produce goods and services.
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PRINCIPLE 9
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Prices rise when the Government prints too much money.
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PRINCIPLE 10
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Society faces a Short-Run Trade-Off between Inflation and Unemployment
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Shift Of A Demand Curve
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Movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good.
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Supply
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A relationship between the price of a good and the quantity that producers are willing and able to sell during a given period, (o.t.c.).
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Law Of Supply
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The quanity of a good supplied during a given period is usually directly related to its price (o.t.c.).
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Supply Curve
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A curve showing the relation between the price of a good and the quantity supplied during a given period, (o.t.c.)
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Quantity Supplied
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The amount offered for sale at a particular price, as reflected by a point on a given supply curve.
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Individual Supply
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The supply of an individual producer.
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Market Supply
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The sum of individual supplies of all producers in the market.
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Relevant Resources
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Resources used to produce the good in question.
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Alternative Goods
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Other goods that use some or all of the same resources as the good in question.
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Movement Along a Supply Curve
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Change in quantity supplied resulting from a change in the price of the good, (o.t.c.)
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Shift of a Supply Curve
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Movement of a supply curve left or right resulting from a change in one of the determinants of supply other than price of the good.
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Transaction Costs
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The costs of time and information required to carry out market exchange.
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Surplus
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At a given price, the amount by which quantity supplied exceed quantity demanded; this usually forces the price down.
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Shortage
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At a given price, the amount by which quantity demanded exceeds quantity supplied; this usually forces the price up.
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Equilibrium
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The condition that exists in a market when the plans of buyers match those of sellers, so quantity demanded equals quantity supplied and the market clears.
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Disequilibrium
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The condition that exists in a market when the plans of buyers do not match those of sellers; a temporary mismatch between quantity supplied and quantity demanded as the market seeks equilibrium.
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Price Floor
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A minimum legal price below which a good or service cannot be sold; to have an impact this must be set above the equilibrium price`
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Price Ceiling
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A maximum legal price above which a good or service cannot be sold; to have an impact this must be set below the equilibrium price
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