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85 Cards in this Set
- Front
- Back
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Economics |
The study of choices people make to attain their goals, given their scarce resources scarcity |
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Scarcity |
A situation in which unlimited wants exceed the limited resources available to fulfil those wants |
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Bottom line |
We don’t have enough money, time, resources, etc to do everything for everyone so we have to make choices |
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The three key economic ideas |
People are rational People respond to incentives Optional decisions are made at the margin |
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Rational |
People make choices based on what they believe will make them happy, people do not deliberately do things to make themselves worse off |
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People respond to incentives |
As costs and benefits change, so do the actions that people will take |
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Optimal decisions are made at the margin |
Most decisions involve doing a little something or a little less |
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Economic problems every society must solve |
What goods and services will be produced? How will the goods and services be produced? Who will receive the goods and services produced? |
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Types of economies |
Market Economies Mixed Market Economy Central Economy |
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Efficiency Economy |
Productive efficiency Allocative efficiency |
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Productive efficiency |
Where foods or services are produced at the lowest possible cost |
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Allocative efficiency |
Where production is consistent with consumer preferences MC=MB |
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Economic models |
Economists develop economic models to analyze real-world issues Simplified version of reality |
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Economic models often follow these steps |
1. Decide on the assumptions to use in developing the models 2. Formulate a testable hypothesis 3. Use economic data to test the hypothesis 4. Revise the model if it fails to explain the economic data 5. Retain the revised model to help answer similar economic questions in the future |
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Important features of economic models |
Assumptions and simplifications Testability Economic variabkesn |
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Positive Analysis |
Analysis relying on facts or logic |
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Normative Analysis |
Analysis relying on value judgments |
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Microeconomics |
Is the study of: How households and firms make choices How they interact in markets How governments attempts to influence their choices |
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Macroeconomics |
Is the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth |
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Technology |
The processes a firm uses for turning inputs into outputs of goods and services |
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Capital |
Durable manufactured goods that are used to produce other goods and services |
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Production Possibilities Frontier |
Is a curve showing the maximum attainable combinations of two products that may be produced with available resources and technology |
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Opportunity cost |
The highest-valued alternative that must be given up to engage in an activity |
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Economic growth |
The ability of the economy to increase the production of goods and services |
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Trade |
The act of exchanging one thing for another - buying and selling |
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Absolute advantage |
The ability to produce more of a good or service than others, using the same amount of resources |
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Comparative advantage |
The ability to produce a good or service at a lower opportunity cost than others |
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Demand |
How much consumers want of the product |
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Demand |
How much consumers want of the product |
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Supply |
How much the suppliers are will to provide to consumers |
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Demand |
How much consumers want of the product |
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Supply |
How much the suppliers are will to provide to consumers |
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Demand Schedule |
A table that shows the relationship between the price of a product and the quantity of the product demanded |
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Demand |
How much consumers want of the product |
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Supply |
How much the suppliers are will to provide to consumers |
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Demand Schedule |
A table that shows the relationship between the price of a product and the quantity of the product demanded |
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Quantity demanded |
The amount of a good or service that a consumer is willing and able to purchase at a given price |
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Demand |
How much consumers want of the product |
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Supply |
How much the suppliers are will to provide to consumers |
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Demand Schedule |
A table that shows the relationship between the price of a product and the quantity of the product demanded |
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Quantity demanded |
The amount of a good or service that a consumer is willing and able to purchase at a given price |
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Demand Curve |
A curve that shows the relationship between the price of a product and the quantity of the product demanded |
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Demand |
How much consumers want of the product |
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Supply |
How much the suppliers are will to provide to consumers |
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Demand Schedule |
A table that shows the relationship between the price of a product and the quantity of the product demanded |
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Quantity demanded |
The amount of a good or service that a consumer is willing and able to purchase at a given price |
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Demand Curve |
A curve that shows the relationship between the price of a product and the quantity of the product demanded |
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Market demand |
The demand by all the consumers of a given good or service |
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Ceteris Paribus |
The assumption that all other variables are constant when analyzing the relationship between two variables |
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Ceteris Paribus |
The assumption that all other variables are constant when analyzing the relationship between two variables |
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Law of Demand |
When price falls quantity demanded will rise |
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Substitution effect |
The change in the quantity demanded due to a change in price making the good more or less expensive relative to other goods that are substitutes |
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Income effect |
The change in the quantity demand due to the effect of a change in the goods price on consumers purchasing power |
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Factors that influence market demand |
Income of consumers Prices of related goods Tastes Population and demographics Expected future prices |
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Normal goods |
A good for which the demand increases as income rises and decrease as income falls |
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Normal goods |
A good for which the demand increases as income rises and decrease as income falls |
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Inferior good |
A good for which the demand decreases as income rises, and increases as income falls |
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Normal goods |
A good for which the demand increases as income rises and decrease as income falls |
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Inferior good |
A good for which the demand decreases as income rises, and increases as income falls |
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Substitutes |
Goods and services that can be used for the same purpose |
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Complements |
Goods and services that are used together |
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Tastes |
If consumers tastes change, they may buy more or less of the product |
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Tastes |
If consumers tastes change, they may buy more or less of the product |
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Supply schedule |
A table that shows the relationship between the price of a product and the quantity and the quantity of the product supplied |
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Tastes |
If consumers tastes change, they may buy more or less of the product |
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Supply schedule |
A table that shows the relationship between the price of a product and the quantity and the quantity of the product supplied |
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Quantity supplied |
The amount of a good or service that a firm is willing and able to supply at a given price |
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Supply curve |
A curve that shows the relationship between the price of a product and the quantity of the product supplied |
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Supply curve |
A curve that shows the relationship between the price of a product and the quantity of the product supplied |
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The law of supply |
Holding everything else constant when price rises quantity supply increases |
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Consumer surplus |
Is the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer recieves |
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Consumer surplus |
Is the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer recieves |
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Producer surplus |
Is the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives |
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Marginal cost |
The additional cost to a firm of producing one more unit of good or service |
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Economic efficiency |
A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer and producer surplus is at a maximum |
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Economic efficiency |
A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer and producer surplus is at a maximum |
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Deadweight loss |
The reduction in economic surplus resulting from a market not being in competitive equilibrium |
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Economic efficiency |
A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer and producer surplus is at a maximum |
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Deadweight loss |
The reduction in economic surplus resulting from a market not being in competitive equilibrium |
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Price ceiling |
A legally determined maximum price that sellers can charge |
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Economic efficiency |
A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer and producer surplus is at a maximum |
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Deadweight loss |
The reduction in economic surplus resulting from a market not being in competitive equilibrium |
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Price ceiling |
A legally determined maximum price that sellers can charge |
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Price floor |
A legally determined minimum price that sellers may receive |
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Tax incidence |
The actual difference between what the consumer and seller pay towards the tax |
