Microeconomics Ch 1-4

Front 1

Principles that underlie economics of individiual choice

Back 1

1. resources are scarce
2. the real cost of something is what you must give up to get it.
3. "how much?" is a decision at the margin
4. people usually exploit opportunities to make themselves better off

Front 2

individual choice

Back 2

the decision by an individual of what to do, which necessarily involves a decision of what not to do

Front 3

resource

Back 3

anything that can be used to produce something else

Front 4

scarce

Back 4

there is not enough of the resources available to satisfy all the various ways a society wants to use them

Front 5

opportunity cost

Back 5

-the real cost of an item
-what you must give up in order to get or do something

Front 6

trade-off

Back 6

when you compare the costs with the benefits of doing something

Front 7

marginal decisions

Back 7

decisions about whether to do a bit more or a bit less of an activity (how much?)

Front 8

marginal also means _____

Back 8

extra

Front 9

marginal analysis

Back 9

the study of "how much" decisions

Front 10

incentive

Back 10

anything that offers rewards to people who change their behavior

Front 11

Principles that underlie the INTERACTION of individual choices

Back 11

1. there are gains from trade
2. markets move towards equilibrium
3. resources should be used as efficiently as possible to achieve society's goals
4. markets usually lead to efficiency
5. when markets don't achieve efficiency, government intervention can improve a society's welfare.

Front 12

trade

Back 12

individuals engage in trade, they provide goods and services to others and receive goods and services in return

Front 13

gains from trade

Back 13

people can get more of what they want through trade than they could if they tried to be self sufficient. this increase in output is due to specialization

Front 14

specialization

Back 14

each person specializes in the task that he or she is good at performing.

Front 15

equilibrium

Back 15

when no one would be better off by doing something different

Front 16

an economy is efficient if ...

Back 16

it takes all opportunities to make some people better off without making others worse off

Front 17

equity

Back 17

everyone gets his or her fair share.

Front 18

principles that underlie an economy-wide interaction

Back 18

1. one persons spending is another persons income
2. overall spending get out of line with the economy's produtive capacity
3. government policies can change spending

Front 19

model

Back 19

a simplified representation of a real situation that is used to better understand real-life situations

Front 20

other things equal assumption (all else the same)

Back 20

means that all others relevant factors remain unchanged

Front 21

production possibilities frontier

Back 21

illustrates the trade-offs facing an economy that produces only two goods. it shows the maximum quantity of one good that can be produced for any given quantity produced of the other.

Front 22

factors of production

Back 22

resources used to produce goods and services

Front 23

technology

Back 23

the technical means for producing goods and services

Front 24

comparative advantage

Back 24

an individual has a comparative advantage in producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people

Front 25

absolute advantage

Back 25

an individual has a absolute advantage in an activity if he or she can do it better than other people. having an absolute advantage is not the same thing as having a comparative advantage

Front 26

barter

Back 26

trade. when people directly exchange goods or services that they have for goods or services that they want

Front 27

household

Back 27

a person or group of people that share their income

Front 28

firm

Back 28

an organization that produces goods and services for sale

Front 29

markets for goods and services

Back 29

where firms sell goods and services that they produce to households

Front 30

factor markets

Back 30

where firms buy the resources they need to produce goods and services

Front 31

income distribution

Back 31

the way in which total income is divided among the owners of the various factors of production

Front 32

positive economics

Back 32

the branch of economic analysis that describes the way the economy actually works

Front 33

normative economics

Back 33

makes prescriptions about the way the economy should work

Front 34

forecast

Back 34

a simple prediction of the future

Front 35

competitive market

Back 35

a market in which there are many buyers and sellers of the same good or service, none of whom can influence the price at which the good or service is sold

Front 36

supply and demand market

Back 36

model of how a competitive market works

Front 37

demand schedule

Back 37

shows how much of a good or service consumers will want to buy at different prices

Front 38

quantity demanded

Back 38

the actual amount of a good or service consumers are willing to buy at some specific price

Front 39

demand curve

Back 39

a graphical representation of the demand schedule. it shows the relationship between quantity demanded and price

Front 40

The law of Demand

Back 40

says that a higher price for a good or service, all else the same, leads people to demand a smaller quantity of that good or service

Front 41

shift of the demand curve

Back 41

a change in the quantity demanded at any given price, represented by the change of the original demand curve to a new position, denoted by a new demand curve.

Front 42

movement along the demand curve

Back 42

a change in the quantity demanded of a good that is the result of a change in that good's PRICE

Front 43

6 things that cause shifts in the demand curve

Back 43

1. Complements
2. change in income
3. change in tastes
4. change in expectation of future prices
5. population
6.substitutes

Front 44

substitutes

Back 44

two goods are ___________ if a rise in the price of one of the goods leads to an increase in the demand for the other good

Front 45

complements

Back 45

two goods are ___________ if a rise in the price of one good leads to a decrease in demand for the other good

Front 46

normal good

Back 46

when a rise in income increases the demand for a good

Front 47

inferior good

Back 47

when a rise in income decreases the demand for a good

Front 48

individual demand curve

Back 48

illustrates the relationship between quantity demanded and price for an individual consumer

Front 49

quantity supplied

Back 49

the actual amount of a good or service producers are willing to sell at some specific price

Front 50

supply schedule

Back 50

shows how much of a good or service producers will supply at different prices

Front 51

supply curve

Back 51

shows the relationship between quantity supplied and price

Front 52

a shift in the supply curve

Back 52

a change in the quantity supplied of a good or service at any given price. it is represented by the change of the original supply curve to a new position, denoted by a new supply curve

Front 53

a movement along the supply curve

Back 53

a change in the quantity supplied of a good that is the result of a change in that good's PRICE.

Front 54

input

Back 54

a good or service that is used to produce another good or sevice

Front 55

individual supply curve

Back 55

illustrates the relationship between quantity supplied and price for an individual producer

Front 56

5 factors that shift supply curve

Back 56

changes in input prices
changes in the prices of related goods or services
changes in technology
changes in expectations of future prices
changes in the number of producers

Front 57

equilibrium price

Back 57

the price that matches quantity supplied and quantity demanded

Front 58

equilibrium quantity

Back 58

the quantity bought and sold at this price

Front 59

equilibrium price is aka

Back 59

market-clearing price

Front 60

surplus

Back 60

when the quantity supplied exceeds the quantity demanded. surpluses occur when price is about the equilibrium level

Front 61

shortage

Back 61

when the quantity demanded exceeds the quantity supplied. occurs when price is below equilibrium level

Front 62

a consumers willingness to pay for a good

Back 62

is the maximum price at which he or she would buy the good at

Front 63

individual consumer surplus

Back 63

the net gain to an individual buyer from the purchase of a good. it is = to the difference between the buyer's willingness to pay and the price paid

Front 64

total consumer surplus

Back 64

the sumer of the individual consumer surpluses of all the buyers of a good in a market

Front 65

consumer surplus is often...

Back 65

used to refer to both individual and total consumer surplus

Front 66

a seller's COST

Back 66

is the lowest price at which he or she is willing to sell a good

Front 67

individual producer surplus

Back 67

the net gain to an individual seller from selling a good. is = to the difference between the price received and the seller's cost or willingness to sell amount

Front 68

total surplus

Back 68

in a market is the sumer of the individual producer surpluses of all the sellers of a good in a market.

Front 69

producer surplus is often...

Back 69

used to refer to both individual and to total producer surplus

Front 70

the total surplus generated in a market

Back 70

the total net gain to consumers and producers from trading in the market. it is the sum of the producer and the consumer surplus

Front 71

property rights

Back 71

are the rights of owners of valuable items, whether resources or goods, to dispose of those items as they chose

Front 72

economic signal

Back 72

any piece of information that helps people make better economic decisions

Front 73

a market or economy is INEFFICIENT if...

Back 73

there are missed opportunities: some people could be made better off without making other people worse off

Front 74

market failure

Back 74

occures when a market fails to be efficient