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56 Cards in this Set

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  • Back
Economics
the study of how society manages its scarce resources
Efficiency
the property of society getting the most it can from its scarce resources
Equality
the property of distributing economic prosperity uniformly among the members of society
Opportunity Cost
whatever must be given up to obtain some item
Rational People
people who systematically and purposefully do the best they can to achieve their objectives
Marginal Changes
small incremental adjustments to a plan of action
Incentive
something that induces a person to act
Market Economy
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
Property Rights
the ability of an individual to own and exercise control over scarce resources
Market Failure
a situation in which a market left on its own fails to allocate resources efficiently
Externality
the impact of one person's actions on the well being of a bystander
Market Power
the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices
Productivity
the quantity of goods and services produced from each unit of labor input
Inflation
an increase in the overall level of prices in the economy
Business Cycle
fluctuations in economic activity, such as employment and production
Circular-flow Diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
Production Possibilities Frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
Microeconomics
the study of how households and firms make decisions and how they interact in specific markets
Macroeconomics
the study of economy wide phenomena, including inflation, unemployment, and economic growth
Positive Statements
claims that attempt to describe the world as it is
Normative Statements
claims that attempt to prescribe how the world should be
Market
a group of buyers and sellers of a particular good or service
Competitive Market
a market i which there are many buyers and many sellers so that each has a negligible impact on the market price
Quantity Demanded
the amount of a good that buyers are willing and able to purchase
Law of Demand
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
Demand Schedule
a table that shows the relationship between the price of a good and the quantity demanded
Demand Curve
a graph of the relationship between the price of a good and the quantity demanded
Normal Good
a good for which, other things equal, an increase in income leads to an increase in demand (most goods, jewelry, cars, etc)
Inferior Good
a good for which, other things equal, an increase in income leads to a decrease in demand (if you increase income, you are less likely to ride the bus)
Substitutes
two goods for which an increase in the price of one leads to an increase in the demand for the other (hot dogs and hamburgers, sweaters and sweatshirts, movie tickets and video rentals)
Shift in demand curve
1. Income
2. Prices of related goods
3. Tastes
4. Expectations
5. Number of buyers
Quantity supplied
the amount of a good that sellers are willing and able to sell
Law of supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
Supply Schedule
a table that shows the relationship between the price of a good and the quantity supplied
Supply Curve
a graph of the relationship between the price of a good and the quantity supplied
Market Supply and Market Demand
the sum of the individual supply or demand
Shifts in the supply curve
1. Input Prices
2. Technology
3. Expectations
4. Number of sellers
Equilibrium
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
Equilibrium Price
the price that balances quantity supplied and quantity demanded
Equilibrium Quantity
the quantity supplied and the quantity demanded at the equilibrium price
Surplus
a situation in which quantity supplied is greater than quantity demanded
Shortage
a situation in which quantity demanded is greater than quantity supplied
Law of supply and demand
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
Elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to one its determinants
Price Elasticity of Demand
Percentage change in quantity demanded/ Percentage changed in price

Factors:
1. Availability of close substitutes
2. Necessities vs. Luxuries
3. Definition of the Market
4. Time Horizon
Total Revenue
the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold (P * Q)
Income Elasticity of Demand
Percentage change in quantity demanded/ Percentage change in income
Cross-Price Elasticity of Demand
Percentage change in quantity demanded of good 1/ Percentage change in the price of good 2
Price Elasticity of Supply
Percentage change in quantity supplied/ Percentage change in price
Elastic and Inelastic
Inelastic= less than 1
Elastic= greater than 1
Unit Elastic= 1
Welfare Economics
the study of how the allocation of resources affects economic well-being
Willingness to Pay
the maximum amount that a buyer will pay for a good
Consumer Surplus
the amount a buyer is willing to pay MINUS the amount the buyer actually pays for it
Cost
the value of everything a seller must give up to produce a good
Producer Surplus
the amount a seller is paid for a good MINUS the sellers cost of providing it
Efficiency (definition 2)
the property of a resource allocation of maximizing the total surplus received by all members of society