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64 Cards in this Set
- Front
- Back
Scarcity |
unlimited wants exceed the limited resources available to fulfill those wants. |
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economics |
The study of the choices people make to attain their goals, given their scarce resources. |
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Economic Model |
A simplified version of reality used to analyze real-world economic situations.
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Market |
A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade. |
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Three Economic Ideas |
1. People are rational2. People respond to economic incentives3. Optimal decisions are made at the margin |
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Marginal Analysis |
Analysis that involves comparing marginal benefits and marginal costs. |
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Trade Off |
The idea that, because of scarcity, producing more of one good or service means producing less of another good or service. |
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Opportunity Cost |
The highest-valued alternative that must be given up to engage in an activity. |
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3 Fundamental Economic Questions |
1. What goods and services will be produced?2. How will the goods and services be produced?3. Who will receive the goods and services produced? |
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Production Efficiency |
A situation in which a good or service is produced at the lowest possible cost. |
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Allocative Efficiency |
A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides marginal benefit to society equal to the marginal cost of producing it. |
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Voluntary Exchange |
A situation that occurs in markets when both the buyer and the seller of a product are made better off by the transaction. |
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Equity |
The fair distribution of economic benefits. |
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Positive Analysis |
Analysis concerned with what is. |
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Normative Analysis |
Analysis concerned with what ought to be.
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Microeconomics |
The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices. |
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Macroeconomics |
The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.
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Production Possibilities Frontier |
A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology. |
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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 buying and selling. |
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Absolute Advantage |
The ability of an individual, a firm, or a country to produce more of a good or service than competitors using the same amount of resources. |
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Comparative Advantage |
The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors. |
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Product Market |
A market for goods- such as computers- or services- such as medical treatments. |
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Factor Market |
A market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability. |
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Factors of Production |
The inputs used to make goods and services.
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Free Market |
A market with few government restrictions on how a good or service can be produced or sold or how a factor of production can be employed. |
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Entrepreneur |
Someone who operates a business, brining together the factors of production- labor, capital, and natural resources- to produce goods and services. |
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Property Rights |
The right individuals or firms have to the exclusive use of their property, including the right to buy or sell it. |
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Perfectly Competitive Market |
A market that meets the conditions of having (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market. |
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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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Qty 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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Law of Demand |
A rule that states, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease. |
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Substitution Effect |
The change in the quantity demanded of a good that results from 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 demanded of a good that results from the effect of a change in the good's price on consumer's power.
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Ceteris Paribus |
"All Else Equal" The requirement that when analyzing the relationship between two variables--such as price and quantity demanded--other variables must be held constant. |
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Values that SHIFT market demand
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-Income-Prices of related goods-Tastes-Population and demographics-Expected future prices |
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Normal Good |
A good for which the demand increases as income rises and decreases as income falls. |
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Inferior Good |
A good for which the demand increases as income falls and decreases as income rises. |
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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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Demographics |
The characteristics of a population with respect to age, race, and gender. |
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Qty 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 Schedule |
A table 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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Law of Supply |
A rule that states holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in quantity supplied. |
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Variables that SHIFT market supply |
-Price of inputs-Technological change-Prices of related goods in production-Number of firms in the market-Expected future prices |
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Technological Change |
A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs. |
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Market Equilibrium |
A situation in which quantity demanded equals quantity supplied. |
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Competitive Market Equilibrium |
A market equilibrium with many buyers and sellers. |
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Surplus |
A situation in which the quantity supplied is greater than the quantity demanded. |
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Shortage |
A situation in which the quantity demanded is greater than the quantity supplied. |
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Black Market |
A market in which buying and selling take place at prices that violate government price regulations. |
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Consumer Surplus |
The difference between the highest price a consumer is willing to pay for a good or service and the price the consumer actually pays.
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Dead-weight 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 surplus and producer surplus is at a maximum. |
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Economic Surplus |
The sum of consumer surplus and producer surplus. |
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Marginal Benefit |
-The additional benefit to a consumer from consuming one more unit of a good or service.-The demand curve is often referred to as the marginal benefit curve |
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Marginal Cost |
-The additional cost to a firm of producing one more unit of a good or service.-The supply curve is often referred to as the marginal cost curve |
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Price Ceiling |
A legally determined maximum price that sellers may charge. |
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Price Floor |
A legally determined minimum price that sellers may receive. |
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Producer Surplus |
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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Tax Incidence |
The actual division of the burden of the tax between buyers and sellers in a market. |