Basic econ Flashcards
study of decision-making.
economics
we study the economic decision-making of the individual and the
consequences of those decisions. We isolate individual markets and we try to explain how they
function and what will cause their behavior to change.
microeconomics
we study the
behavior of an economy as an aggregate, or as a whole.
Macroeconomics
Some resources seem to be abundantly available to everyone, so we have trouble seeing them
as ―limited.‖
free goods
means that society has limited resources
and therefore cannot produce all the goods and
services people wish to have.
scarcity
is the study of how society manages
its scarce resources.
economics
To get one thing, we usually have to give up
another thing.
P1 People Face Tradeoffs.
means society gets the most that it can
from its scarce resources.
Efficiency
means the benefits of those resources are
distributed fairly among the members of society.
Equity
Decisions require comparing costs and benefits
of alternatives.
P2 The Cost of Something Is What
You Give Up to Get It.
People make decisions by comparing
costs and benefits at the margin.
Principle #3: Rational People Think at the
Margin.
are small, incremental
adjustments to an existing plan of action.
Marginal changes
People gain from their ability to trade with one
another.
Principle #5: Trade Can Make Everyone
Better Off.
Marginal changes in costs or benefits motivate
people to respond.
Principle #4: People Respond to Incentives.
is an economy that allocates
resources through the decentralized decisions of
many firms and households as they interact in
markets for goods and services.
market economy
Households decide what to buy and who to work
for.
Firms decide who to hire and what to produce.
Principle #6: Markets Are Usually a Good
Way to Organize Economic Activity.
When the market fails (breaks down)
government can intervene to promote efficiency
and equity.
Principle #7: Governments Can Sometimes
Improve Market Outcomes.
occurs when the market fails to
allocate resources efficiently.
Market failure
which is the impact of one person or
firm’s actions on the well-being of a bystander.
externality
which is the ability of a single person
or firm to unduly influence market prices.
market power
is an increase in the overall level of
prices in the economy.
Inflation
Standard of living may be measured in different
ways:
By comparing personal incomes.
By comparing the total market value of a nation’s
production.
is the amount of goods and
services produced from each hour of a worker’s
time.
Productivity
Almost all variations in living standards are
explained by differences in countries’
productivities.
Principle #8: The Standard of Living Depends
on a Country’s Production.
The Phillips Curve illustrates the tradeoff
between inflation and unemployment:
⇩Inflation ⇨ ⇧Unemployment
The Phillips Curve illustrates the tradeoff
between inflation and unemployment:
One cause of inflation is the growth in the
quantity of money.
Principle #9: Prices Rise When the
Government Prints Too Much Money.
is the ultimate source of living
standards.
Productivity
is the ultimate source of
inflation.
Money growth
represents all possible combinations in which two given goods or services
can be produced. Typically, the frontier is curved, bowed outward from the origin.
Production Possibilities Frontier (PPF)
Production at any point along the PPF is?
attainable and efficient,
Production at a point inside the frontier is?
attainable but inefficient,
Production at a point beyond the frontier is
impossible to attain.
On the PPF, as production approaches a point closer to either axis, the
opportunity cost of a trade-off
Increases
is what causes the PPF to curve.
law of increasing
opportunity costs
shows what quantity of a particular good or service consumers
are willing and able to buy at each price within a range of prices.
A demand schedule
When consumers make more money, they have
more money to spend.
A change in consumer income.
If a price
change convinces consumers to buy a substitute, demand decreases. If a price change gets consumers buying more of a complementary good, demand increases.
A change in the price of a substitute or complementary good.
as the price per unit increases, consumers will demand less of a good or service.
law of
demand,
If the number of demanders changes,
the number of people who can (and will) consumer a given item will also change.
A change in the number of demanders.
which automatically
raise their salaries in order to keep up with inflation. That type of pay increase won’t
affect demand. But when consumer income rises faster than inflation, we can observe a
change in demand.
Cost of Living Adjustments,
If consumers expect any of the above changes to occur,
they will adjust their purchasing patterns accordingly.
- A change in expectations.
What consumers like and don’t like influences what
they buy. If one good or service becomes more “in style,” demand for it will increase.
A change in consumer tastes.
is one that can easily replace another good.
substitute good
is one so closely related to another that when the consumption of
either good changes, the other is affected in a similar way.
complementary good
shows what quantity of a particular good or service sellers are willing and able to
produce and sell at each price within a range of prices.
supply
schedule
as the
price per unit increases, sellers will supply more of a good or service.
law of supply
The curve is upward-
sloping
supply curve
is the quantity of a good or service that sellers are willing and able to produce and sell
at one given price.
Quantity
supplied
At a high given price,
quantity supplied is high; at a low price, quantity supplied is low.
law of supply
is an incentive to offer a higher volume of a good or service.
profit
Profit has two parts:
factor costs; price
