Ch 1-3 Flashcards
What is economics?
The study of scarce resources and unlimited wants
What is opportunity cost?
The value of what you give up to do something else
3 economic ?’s
what to produce?
how to produce?
for whom to produce?
Factors of production (resources)
land, labor, capital, entrepreneurship
Positive economic statement
what is, fact
Normative economic statement`
what should be, opinion
Ceteris paribus (CP)
other things being equal, nothing else changes
Production possibilities curve (PPC)
alternative combinations of goods and services that could be produced in a given time period with all available tech + resources
Increase in PPC (curve shift to right)
increase in resources/tech
A point on the PPC curve?
efficient
A point inside the PPC curve?
inefficient
A point outside the PPC curve?
unattainable
Economic growth
increase in output (real GDP)
GDP
gross domestic product, total market value of all final goods + services produced in 1yr
Per capita
per person
Productivity
output per unit of input
Role of government
legal framework, protect environment, protect consumers + workers
What is demand?
shows the quantity of a good that will be purchased by consumers at various prices, CP
Law of demand
increase in price leads to a decrease in quantity demand, cp
Law of demand (inverse)
decrease in price leads to an increase in quantity demand, cp
Demand curve
slopes down
Individual demand
one person
Market demand
sum of all demand
Demand on a graph
whole curve
Quantity demand on a graph
point on curve
when price changes (demand)
quantity demand changes (movement)
when “other things” change (demand)
demand changes (shift)
decrease of demand on a graph
left on a graph
increase of demand
right on a graph
“other things” that change demand
taste/desire, income, other goods, expectations, # of buyers
Complementary goods (go together)
if price of X increases then quantity demand of X decreases and the demand of Y decreases
Substitutes (either/or)
if the price of X increases then quantity demand of X decreases and the demand of Y increases
What is supply?
shows quantity of a good that will be produced by sellers at different prices, CP
Law of supply
increase in price leads to increase in quantity supply, cp
Law of supply (inverse)
decrease in price leads to decrease in quantity supply, cp
supply curve
slopes up
individual supply
one person
market supply
sum of all supply
supply on a graph
whole curve
quantity supply on a graph
point on curve
when price changes (supply)
quantity supply changes (movement)
when “other things” change (supply)
supply changes (shift)
increase in supply
right on a graph
decrease in supply
left on a graph
“other things” that change supply
tech, factor costs, other goods, taxes/subsidies, expectations, # of sellers
Equilibrium
point of balance (market)
At equilibrium on a graph
Quantity demand equals quantity supply
surplus
excess quantity supply, too high
shortage
excess quantity demand, too low
increase in demand as it relates to Equil?
increase in equil price and increase in equil quantity
decrease in demand as it relates to Equil?
decrease in equil price and decrease in equil quantity
increase in supply as it relates to Equil?
decrease in equil price and increase in equil quantity
decrease in supply as it relates to Equil?
increase in equil price and decrease in equil quantity
price floor
minimum price for good, must be above equilibrium
price ceiling
max price for good, must be below equilibrium
in economics…
ceilings are below floors
