Microeconomics Test 1

Front 1

oikonomos

Back 1

greek word for economics, means "the one who manages a household"

Front 2

scarcity

Back 2

the limited nature of resources

Front 3

economics

Back 3

study of how society manages its scarce resources

Front 4

principle one

Back 4

people face tradeoffs. you have to give up one thing to get another

Front 5

principle 2

Back 5

the cost of something is what you give up to get it. the true cost of something is the opportunity cost

Front 6

opportunity cost

Back 6

what you give up to get an item. increase quantity produced of one good, decrease quantity produced of another good

Front 7

principle 3

Back 7

rational people think at the margin. rational people (people who do the best they can to achieve their objectives) think through every outcome

Front 8

marginal changes

Back 8

small incremental adjustments to a plan of action

Front 9

marginal cost

Back 9

opportunity cost of producing one more unit of a good or service

Front 10

marginal benefit

Back 10

benefit received from consuming one more good or service that they are willing and able to

Front 11

marginal benefit curve

Back 11

shows relationship between the marginal benefit from a good and the quantity of that good consumed

Front 12

principle of decreasing marginal benefit

Back 12

the more we have of any good or service, the smaller its marginal benefit and the less we are willing to pay for an additional unit

Front 13

allocative efficiency

Back 13

optimal distribution of goods and services, we can't produce any more of one good without giving up production of another good that we value more highly

Front 14

economic growth

Back 14

expansion of production possibilities and increase in standard of living, influenced by technological change and capital accumulation

Front 15

technological change

Back 15

development of new goods and better ways to produce them

Front 16

capital accumulation

Back 16

growth of capital resources, includes human capital

Front 17

principle 4

Back 17

people respond to incentives. give somebody a reason to buy something and they'll do it

Front 18

incentive

Back 18

something that induces a person to act

Front 19

principle 5

Back 19

trade can make everybody better off. trade allows division of labor and specialization

Front 20

absolute advantage

Back 20

ability of a party to produce more goods or services than competitors using the same amount of resources

Front 21

adam smith

Back 21

father of modern economics

Front 22

comparative advantage

Back 22

two parties can gain from fade if in the absence of fade they have different costs of making the same good

Front 23

principle 6

Back 23

markets are a good way to organize economic activity. consumers know what they want to buy so its best if they decide what is produced

Front 24

market economy

Back 24

the decisions of a central planner are replaced by the decisions of millions of firms and households

Front 25

principle 7

Back 25

governments can sometimes include market outcomes

Front 26

property rights

Back 26

ability of an individual to own and exercise control over scarce resources

Front 27

market failure

Back 27

a situation where a market left on its own fails to allocate resources efficiently

Front 28

principle 8

Back 28

a country's standard of living depends on its ability to produce goods or services

Front 29

principle 9

Back 29

prices rise when the government produces too much money

Front 30

principle 10

Back 30

society faces a short run trade-off between inflation and unemployment

Front 31

market

Back 31

group of buyers and sellers of a particular good or service

Front 32

competitive market

Back 32

a market in which there are many buyers and sellers so that each has a negligible impact on the market price

Front 33

perfectly competitive market

Back 33

all goods are exactly the same, buyers and sellers are so numerous that no one can affect market price

Front 34

demand

Back 34

amount of the good that buyers are willing and able to purchase

Front 35

law of demand

Back 35

the claim that quantity demanded of a good falls when the price of the good rises, other things equal.

Front 36

demand schedule

Back 36

table that shows the relationship between the price of a good and the quantity demanded

Front 37

law of supply

Back 37

the claim that the quantity supplied of a good rises when the price of the good rises

Front 38

quantity supplied

Back 38

the amount of a good that sellers are willing and able to sell

Front 39

supply schedule

Back 39

a table that shows the relationship between the price of a good and the quantity supplied

Front 40

equilibrium price

Back 40

the price that equates quantity supplied with quantity demanded

Front 41

equilibrium quantity

Back 41

the quantity supplied and the quantity demanded at the equilibrium price

Front 42

surplus

Back 42

when quantity supplied is greater than quantity demanded

Front 43

shortage

Back 43

when quantity demanded is greater than quantity supplied

Front 44

elasticity

Back 44

measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants