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106 Cards in this Set
- Front
- Back
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scarcity
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a situation in which unlimited wants exceed the limited resources available to fulfill those wants
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economics
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study of choices people make to attain their goals given scare resources
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3 economic assumptions
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people are rational
people respond to incentives optimal decision are made at the margin (decisions are made that will have incremental benefits) |
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market
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a group of buyers and sellers of a good ro service and the institution or arrangment by which they come together to grade
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marginal analysis
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analysis that compares marginal costs and benefits
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trade-off
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because of scarcity societies are forced to choose producing one good or service over another
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opportunity cost
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the highest valued alternative that must be given up to engage in an activity
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trade offs force society to answer which questions
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what goods and services will be produced?
how will the goods and services be produced? who will receive the goods and services? |
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centrally planned economy
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an economy in which the government decides how economic resources are allocated
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market economy
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an economy in which the decision of households and firms interacting drive how economic resources are allocated
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mixed economies
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an economy in which most economic decisions result from buyer/seller interactions, but the gov plays a significant role in the allocation of resources
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productive efficiency
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a situation in which a good or service is produced at the lowest possible cost
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allocative efficiency
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state of the economy in which production is in accordation with consumer preferences. Every good/service is produced to the point where the last unit provides a marginal benefit equal to the marginal cost of production
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voluntary exchange
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where the buyer and seller of a product are better off by the transaction
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equity
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the fair distribution of wealth
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steps to develop an economic model
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decide on the assumptions
formulate a testable hypothesis use economic data to test the hypothesis revise the model if it fails retain the revised model to help answer similar economic questions |
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positive statement
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something that can be tested
ex: an increase in trees will reduce global carbon atm levels |
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normative statement
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something that makes a statement about how things should be
ex: immigration should be allowed |
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study of micro vs macro
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micro studies how households and firms make choices and how they interact in markets
macro studies the economy as a whole including inflation, unemployment, and economic growth |
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innovation
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a broad significant improvement to society
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percent change
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final - original
--------------- original |
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factors of production
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workers, capital, natural resources, and etrepreneaurial ability
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Production possibilities frontier
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a curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology
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Is a PPF linear
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usually not
1 unit of one product does not necessarily equal 1 unit of another product |
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points on a PPF line represent
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combination of production of two quantities that is attainable
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a point that lies inward of the PPF line represents
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a scenario that is attainable but inefficient
often happens in scenarios where there has been unemployment or recessions |
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a point that lies outside of the PFF line represents
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an unattainable scenario given the amount of resources
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increasing marginal opportunity cost
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devoting more resources to one quanity will lead to larger decreases in the production of the other item
the more resources devoted to an activity the smaller the pay to devoting additional resources to the other activity. |
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what is implied by a shift out in the ppf
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resources and technology increased
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trade
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the act of buying and selling
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In a linear scenario, how to you calculate the opportunity cost
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opp cost of B is A/B
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absolute advantage
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the ability of an individual/firm/country to produce more of a good/service than competitors using the same amount of resources
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comparative advantage
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ability of an individual/firm/country to produce a good or service at a lower opportunity cost than competitors
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what is the basis for trade
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comparative advantage
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product markets
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markets for goods and services
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factor markets
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markets for the factors of production, such as labor, capital, natural resources, etc
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factors of production
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the inputs used to make goods and services
ex include capital (ex computers and machine tools) and labor |
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free market
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few gov restrictions on how a good can be produced and how a factor of production can be employed
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entrepreneur
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someone who operates a business, bringing together the factors of production to produce good and services
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property rights
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the rights of individuals/firms have to the use of their property including the right to buy or sell
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the difference between capital goods and consumption goods
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capital goods are goods that are used to produce more goods/services (such as computers, factories, machines)
consumption goods are final for the consumer |
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How are resources used related to economic growth in the future
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the more resources dedicated, the more economic growth
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which leads to more economic growth, dedicating resources to capital or consumptive goods?
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capital goods
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when the comparative advantage is the same for two companies can there be gains from trade?
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no
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one of the benefits of trade
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increasing production and consumption
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does private property rights include intellectual property?
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yes
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product market
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final market designed for a good/service
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who demands and supplies in a product market?
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the households demand and firms supply
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factor markets
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markets for the inputs of production (labor, capital, natural resources)
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who supplies and demands in a factor market
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individuals supply and firms demand
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assumptions of supply and demand
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there is no market failure and markets are perfectly competetive
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what is a perfectly compteitive market?
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A market that meets the conditions of 1) many buyers and sellers 2) all firrms selling identical products, and 3) no barriers to new firms entering the market
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in a perfect competitive market what is the economic profit assumption
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account profit + opportunity cost = 0
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in a market system who decides what goods and services will be produced
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consumers
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what is the main factor that will influence a consumers willingness to buy a product
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price
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demand schedules
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a table showing the relationship between the price of a product and the quanity of the product demanded
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quantity demanded
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(often graphed just as quantity) referes to the amount of a good/service that a person is willing and able to purchase at a given price
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demand curve
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a curve that shows the relationship between the price of a product and the quantity demand (willingness to buy)
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market demand
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the demand by all consumers for a good/service
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what is the law of demand
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holding everything constant, certis parabis, when the price of a product falls, the quantity demanded for the product increases and vice versa
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Two reasons that the demand curve is downward sloping?
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substitution effect and income effect
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substitution effect
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the change in quantity demand tat results from a change in price, making the good more or less expensive in relation to other substitutes.
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income effect
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the change in quantity demand resulting from the effect of a change in a good's price on consumers' purchasing power
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what causes a shift along the demand curve
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change in priice
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what causes a shift to a new demand curve
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a variable other than price is not held constant:
income price of related goods tastes population and demographics expected future prices |
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normal good
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a good for which the demand increases as income rises and decrease as income falls
ex: prime rib |
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inferior good
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a good for which the demand increases as income falls and decreases as income rises
ex: tap ramin |
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how does income affect a demand curve
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if affects ones ability and willingness to spend money
during a recession the demand curve for a normal good will shift to the left, but for an inferior good may shift to the right vice versa |
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explain how substitutes affect each other demand curves
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if the price of X good goes up, its demand will go down, but its substitute, Y, will go up in demand
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explain how complements affect each others demand curves
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if the price of X good goes up, its demand will go down, but its compliment, Y, will go down in demand as well
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how do tastes affect a demand curve
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consumers are influenced by advertising campaigns
if an ad makes product X, more desirable, demand will increase |
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how does population and demographic generally influence a demand curve
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in general, more people means more demand
demographics will have different preferences (ex: baby boomers and health care) |
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how does expected future prices affect a demand curve
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if it is expected that price will increase, the demand for a product will increase as well
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what is the difference between a change in demand and a change in quantity demanded
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a change in demand means a shift in the demand curve
a change in quantity demanded refers to a change that happens along the demand curve as a result of price |
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quantity supplied
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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 schedule
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a table that show the relationship between the price of a product and the quantity of the product supplied
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supply curve
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a curve that shows the relationship between the price of a product and the quantity of the product supplied
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law of supply
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Everything else constant, increases in price cause increase in quantity supplied, decreases in price lead to decreases in quantity supplied
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what is the slope of a supply curve
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positive
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what variables shift market supply?
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prices of inputs
technological changes prices of substitutes in production number of firms in the market expected future prices |
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how does price of inputs shift supply?
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If the cost of an input rises then the cost of production will increase, making less profit, and supply will decline
vice versa |
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as the price of a product increases under a supply schedule the quantity supplied...
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increases
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how does technological changes shift supply?
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Positive technolgical change leads to lower costs, increasing profit, increasing supply to the right, and vice versa
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technological change
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a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
po = firm is able to produce more output using the same amount of inputs |
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how does the price of substitutes in product affect supply
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If the price of making one good is not as profitable for a company, then the company will shift from that product and produce its substitute instead. It will increase supply for the alt product and decrease for the original product
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how does the number of firms in the market affect supply
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When new firms enter it shifts the supply curve to the right
When firms exit the supply curve shifts to the left |
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how do expected future prices affect supply
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if a firm expects that the price of a product will be higher, it will decrease supply and increase it in the future
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difference between change in supply and change in quantity supplied
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change in supply refers to a shift in the supply curve
change in the quantity supplied refers to a change relating to the products price and is along the curve |
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market equilibrium
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a situation where quantity demanded equals quantity supplied
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competitve market equilibrium
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a market with many buyers and sellers
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assumptions of market equilibrium
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that there are enough sellers to be competitive
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Technology
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the way in which firms combing inputs to make a product
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surplus
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a situation in which quantity supplied is greater than quantity demanded
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shortage
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a situation in which quantity demanded is greater than quantity supplied
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when new firms enter the market what happens to the supply curve
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shift to the right
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two single shifts that will increase equilibrium price
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increase demand or decrease supply
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what happens when you increase D
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increase P and increase Q
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what happens when you decrease D
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decrease P decrease Q
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what happens when you decrease S
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increase P decrease Q
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what happens when you increase S
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deacrease P increase Q
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what happens increase D and S
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P unknown, Q increases
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what happens decrease D and S
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P unknown, Q decreases
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what happens decrease D and increase S
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P down, Q unknown
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what happens increase D, decrease S
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P up, Q unknown
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marginal benefit
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the amount that a person is willing to pay for a good/service
the more the person consumes, the smaller the marginal benefit |
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marginal cost
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the cost that comes from making one additional good/service
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