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59 Cards in this Set

  • Front
  • Back
What is economics?
- Social science (deals with people and the institutions they create)
- Deals with how people make decisions to allocate resources to achieve their goals
Scarcity
-Resources are finite
Economic Goods
- Goods that are limited in supply
- Considered scarce
Economic Efficiency
- Economy is producing efficiently when it cannot increase the economic welfare of anyone without making at least one person worse off
Equity
- The distribution of wealth within a society
Microeconomics
- The branch of economics that deals with the behavior of individual entities, such as consumers, firms, households, or markets
Major focus of Microeconomics
- Price determination
Macroeconomics
- Concerned with the overall performance of the economy (inflation, unemployment, growth)
Post Hoc fallacy
- Occurs when people assume that because one event follows another, the first event caused the second
Fallacy of Composition
- Occurs when we assume that what holds true for part of a system also holds true for the whole
Positive Economics
- Deals with questions that can be analyzed objectively
Normative Economics
- Involves ethical precepts and norms of fairness
Command Economy
- Government makes all important decisions about production and distribution
Market Economy
- Individuals and prive firms make the major decisions
- Extree case is laissez-faire
Mixed Economy
- Mix between command and market
- All modern economies
Production Possibilites Frontier
- Shows the possible combinations of two or more goods that an economy could produce with its resources
Opportunity Cost
- Value of items not produced because resources were used for another purpose
Market
- A mechanism by which buyers and sellers interact to determine the price and quantity of a good or service
Market Economy
- An elaborate mechanism for coordinating people, activities, and businesses through a system of prices and markets.
- No single individual or organization is responsible for production, consumption, and distribution
Market Equilibrium
- A market is in equilibrium when the commodity is neither in glut nor shortage at the prevailing price
The Invisible Hand
- The orderliness of the maket system
- Coined by Adam Smith
Specialization
- Occurs when people or countries can concentrate on the items that can be produced most efficiently
Division of labor
- Allows individuals to perform the tasks they do best
Primary Factors of Production
- Land and labor
Three Main Economic Functions of Government
- Increasing efficency by promoting competition, curbing externalities, and providing public goods
Public Goods
- Commodities that can benefit may people without being used up
- Public schools, parks, highways, national defense
Progressive Taxation
- Higher tax rates ofr higher incomes
Monetary Policy
- Interest rate and money supply
Fiscal Policy
- Taxes and government spending
Demand Schedule
- Shows the relationship between a commodity's market price and the quantity of that commodity that consumers are willing to purchase, other things held constant
Factors affecting Demand
- Size of market, income level of consumers, price and availability of related goods, tastes and preferences, special influences
Supply Schedule
- Shows the relationship between the market price and the amount of that commodity that producers are willing and able to produce and sell, other things held constant
Supply Shifters
- Changes in costs of inputs, technological change, government policy, special factors
Supply Increases
- Price Down
- Quantity Up
Supply Decreases
- Price Up
- Quantity Down
Demand Increases
- Price Up
- Quantity Up
- TR Up
Demand Decreases
- Price Down
- Quantity Down
- TR Down
Price Elasticity of Demand
- Measures how much the quantity demanded of a good changes when its own price changes
- Percent change in quantity demanded divided by the percentage change in price
Demand is Price Elastic
- Ed is greater than 1.0
Demand is Price Inelastic
- Ed is less than 1.0
Perfectly Elastic Demand
- Horizontal demand curve
Perfectly Inelastic Demand
- Verticla demand curve
TR and Elasticity
- If demand is Elastic, TR will move in the same direction as quantity
- If demand is inelastic, TR will move in the same direction as price
Elasticity of Supply
- Supply is inelastic if it crosses the horizontal axis
- Supply is elastic if it crosses the vertical axis
- Supply is unitary elastic if it goes through the origin
Taxes and Normal Supply and Demand
- Supply shifts up by the amount of the tax
- Price ries by less than the tax
- The group with the lowest elasticity pays the greater share of the tax
Taxes and Pefectly Inelastic Demand
- Price rises by full amount of tax. Consumers pay all
Taxes and Perfecty Elastic Demand
- Price doesn't rice at all. Producers pay all
Taxes and Perfectly Elastic Supply
- Price rises by full amount of tax. Consumers pay all
Taxes and Perfectly Inelastic Supply
- Price doesn't change at all. Producers pay all.
Price Floor
- Legally set minimum price. Price floors above market equilibrium lead to surpluses
Price Ceilings
- Legally set maximum price. Price ceilings below market equilibrium lead to shortages
Utility
- The satisfaction consumers derive from goods and services
Indifference Curve
- Shows the combinations of two ore more products that would provide equal satisfaction to a consumer
Point of Tangency
- The consumer's choice is the point where the budget constraint is just tangent to the highest attainable indifference curve
Consumer Surplus
- The area above the price line and below the demand curve
Production Function
- Relates inputs to output in physical terms
Total Product
- Output
Average Product
- Divid total product by the input level
Marginal Product
- Tells you how much extra output you get form each unit of extra unit of input
- Take the change in total product and divide by the change in input