2023 Test 1 Flashcards
What is the “economy”?
The Economy is us.
What we collectively produce and consume is what the economy produces and consumes.
What is Macroeconomics?
the study of aggregate economic behavior of the economy as a whole
The ‘big picture’, things such as full employment, control of inflation, and economic growth
Doesn’t worry about the well-being or behavior of specific individuals or groups
What is Microeconomics?
the study of individual behavior in the economy
concerned w/ the details from individuals, firms, and government agencies that compose the economy
What are the 3 Core Choices every nations confronts?
WHAT to produce with our limited resources,
HOW to produce the goods and services,
FOR WHOM goods and services are produced
What is Scarcity?
Lack of enough resources to satisfy all desired uses of those resources
What is the definition of Factors of Production?
The resources(inputs) used to produce goods and services(outputs) are called?
What are the Four Basic Factors of Production?
Land, Labor, Capital, Entrepreneurship are?
The science of Economics is?
the study of the choices made as we attempt to deal with scarcity?
What is Opportunity Costs?
the most desired resource(s) forgone to get something else is called?
What is an Economic model?
a scaled down, simplified version of real world observations?
uses a limited number of variables to explain these observations
What are Economic models used for?
Used to:
Explain economic behavior
Predict the impact of economic events
Design the economic policies used by government
What is Ceteris Paribus?
assumption of “other things remaining equal” is called?
What are Production possibilities?
the alternative goods and services that could be produces in a given period with available
resources is called?
Efficiency means?
squeezing maximum output out of available resources?
Inefficiency means?
he actual output is less than the potential
Economic Growth is?
increase in output (real GDP); an expansion of production possibilities?
what is laissez faire?
the doctrine of “leave it alone”, nonintervention by government in the market mechanism?
Who argued for a middle ground between laissez-faire and govt. takeover?
The British economist John Maynard Keynes argued?
Market failure means?
when the invisible hand has failed to achieve the best possible outcomes?
Government failure occurs when?
when the government intervention fails to improve market outcomes or makes them worse?
Which Analysis focuses on how things might be done without subjective judgment of what is “best”
Which Analysis incorporates subjective judgments(including moral) about what ought to be done.
Positive analysis vs Normative analysis?
For a competitive market we need?
Large number of buyers and large number of sellers are needed for?
Factor Markets are?
where factors of production(land, labor, capital) are bought and sold?
(If you go to work for example, your employee is purchasing your services.)
Opportunity CostProduct Markets are?
where finished goods and services are bought and sold?
The consumer is?
the final recipient of all goods and services produced?
Who are Market Participants?
310 million consumers, 25 million business firms, tens of thousands of government agencies and International participants are also a part.
*A market exists wherever and whenever an exchange takes place
The consumers’ objective?
objective to buy the most desirable goods and services that their budgets will permit?
What is Businesses objective?
objective to to maximize profits by using resources efficiently?
The Public Sector objective is?
objective to use available resources to serve public needs?
Why specialize and trade?
- We are incapable of producing everything we want to consume
- Even if we could produce everything, it takes more resources and makes more sense to specialize and trade for other desired goods
Every market transaction involves a 2-way exchange of?
exchange of dollars(product markets) or resources(factor markets).
Supply is?
the ability AND willingness to sell(produce) specific quantities of a good at alternative prices.
What does demand mean?
means a willingness AND ability to purchase a specific product at alternative prices
What is Market Demand?
the total quantities of a good or service demanded; the sum of individual demand
The Law of Demand claims…
claims there is an inverse relationship between price and quantity demanded ḈṖ
If Price ↑, then Qo(quantity demanded) ↓
If Price ↓, then Qo ↑
A Demand Schedule is
a table showing the quantities of a good consumers are willing and able to buy at prices
A Demand Curve is
What is Determinants of Demand
Things other than price determine the buying decisions of consumers
Determinants of Demand include…
- Tastes and preferences
- Income
- Other Goods (Substitute goods and Complimentary goods)
- Expectations of Future (prices/tastes/incom)
- Number of buyers
When does the demand curve shift?
when changes in demand happen(due to Determinants of Demand changes)
Market Supply are…
The Law of Supply states…
states there is a direct relationship between price and quantity supplied(cetpar)Market Supply are…
If P ↑, then Qs ↑
If P ↓, then Qs ↓
What is determinants of supply
things besides price that induce suppliers to provide a product or service
The determinants of market supply include:
- Technology
- Factor costs
- Other goods{profitability of Prod.)-if producing other goods provide you more money, there is little incentive
- Government Intervention-a. subsidies b. taxes
- Expectations-of future prices
- Number of sellers - too much competition
Supply curves shift when?
the underlying determinants of supply change.
Equilibrium
Occurs at the perfect intersection of the supply and demand curves.
What is Equilibrium Price
P*-When quantity demanded = Quantity supplied
What is market mechanism?
aka the invisible hand, adjusts based on sales & prices=Price signal
Market Shortage
at a given price, the amount by which Qd exceeds Qs
When does a market shortage occurs?
occurs if price is too low to clear the market
What is a price floor?
a set minimum price charged
What is Market Surplus
at a given price, the amount by which Qs exceeds Qd
When does a market surplus occurs?
occurs when the price is too high to clear the market
The equilibrium price of a product will increase if…
a. The demand for a good increases
b. The supply of a good decreases
The equilibrium price of a product will decrease if…
a. The demand for a good decreases
b. The supply of a good increases
What is a Price Ceiling?
a maximum limit set on the price of a good
What 3 effects do price ceilings have
- Increase the quantity demanded
- Decrease the quantity supplied
- Create a market shortage
What is Psychologists explanation of why we consume?
basic Freud Theory: Ego: Must satisfy basic human needs for security, sex, and ego gratifications.
What is Sociologists explanation of why we consume?
“Conspicuous Consumptions”: to receive recognition from the masses.
Self-Preservation: to keep oneself safe and protected in order to continue living
What is utility?
the pleasure or satisfaction received from consuming a product.
What is disutility?
the displeasure or dissatisfaction received from consuming a product
What is Marginal Utility?
the amount of satisfaction from consuming the last specific unit of a product
What is Total Utility?
the satisfaction obtained from your entire consumption of a product
the law of diminishing marginal utility says…
the MU of a good declines as more of it is consumed in a given period
What does Optimal Consumption mean?
the mix of output that maximizes total utility for the limited amount of income to spend
What is the Utility-Maximizing Rule?
MU(a)/P(a) = MU(b)/P(b)
What is Utility Maximization?
to maximize your total utility, the consumer should choose the good that delivers the most marginal utility per dollar
