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31 Cards in this Set

  • Front
  • Back
how a society allocates scarce resources among essentially unlimited needs and wants.
Originally called price theory, is the branch of economics concerned with decision-making by firms and individuals (or households) and results of those decisions. Usually, the scope is not larger than one market although one market could be large.
Originally called income theory, is the branch of economics concerned with the performance of the economy as a whole, including variables such as unemployment, general price levels and gross domestic product.
The main difference between macroeconomics and microeconomics is the
scope of analysis
Scarcity implies
Opportunity cost
the value of the next best alternative (choice) given up when making a decision.
The reason why Economists disagree
1. Differences in value judgements

2. Differences in scientific judgements

3. we may be unable to percieve reality due to factor in 1 & 2
positive economics
deals with " what is" No value judgements are made.
Normative Economics
deals with " what should be". Value judgements are made.

Deciding what material to cover in a course requires value judgements
Why do economists use models
Reality can be extremely complicated

Models : analyze what happened in the past and possibly predict what will happen in the future
Economic goods
are scarce good for which the desire to own or use them exceeds their availability at a price of zero

Examples: cars, diamonds, food
are things that satisfy needs or wants
Three fundamental questions each economy must answer
1. What to produce

2. For whom to produce

3. How to produce to satisfy some wants
Factors of production
Land- water,soil, air, plants, animals

Labor-human work

Capital- physical ( machinery etc.) and human ( knowledge, training etc.)
Law of increasing relative cost
Opportunity Cost of other goods forgone increases as an economu produces more of a good.
getting max. production out of the resources we have or producing an amount of output at minimal cost
absolute advantage
when one country can produce more of all types of goods than another country
comparative advantage
occurs when one country can produce a good at a lower opportunity cost than another country can produce
Law of Increasing relative cost
Opportunity cost of other goods forgone increases as an economy produces more of a good.
Shows quantity that one or more people want to buy at various prices holding everything else constant
Law of demand
as price per unit rises, quantity demanded falls if all else is constant
2 reasons why demand curve is doward sloping
1. Affordability- Consumers can afford less at higher prices

2. Substitutability- consumers seek less expensive alternatives as the price of a good goes up.
Law of supply
as price per unit rises, quantity supplies increases all other things equal
2 reasons why the supply curve is upward sloping
1. Higher prices create incentives for greater production which could result in higher profits

2. Producing larger quantities often creats a higher per unit cost of production. As production cost rises firms must charge more to earn profit or break even.
a point where no one in the market has an incentive to change his or her plans
normal goods
automobiles, vaction trips, homes- as income increases people tend to spend more on these goods ( vise versa )
inferior goods
instant mac & cheese, ramen noodles

As income increase in many cases consumers may tendd to cut back on these goods
complementary goods
If the price of peanut butter rises (falls), people buy less (more) jelly
If the price of cod rises (falls) people buy more (less) flounder
Factors affecting demand
1. Income
2. Tastes and Preferences
3.Prices of related goods
4.Number or Buyers
5.Expectations of future prices
Factors affecting supply
1. Number of firms
2.Input Costs
3. Technology and Productivity
4. Taxes and Subsidies
5.Price expectations