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Microeconomics > Ch. 1-4 Key Terms > Flashcards

Ch. 1-4 Key Terms Flashcards

1
Q

Scarcity

A

How much we want outweighs how much there actually is in reality

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2
Q

Economics

A

The study of the change in human action under varying degrees of scarcity

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3
Q

First Principle of Economics

A

life is about trade offs

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4
Q

Second Principle of Economics

A

because there are trade offs, there is an opportunity cost associated with every transaction

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5
Q

opportunity cost

A

the highest valued alternative that must be given up to engage in an activity

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6
Q

Third Principle of Economics

A

reasonable people think at the margin

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7
Q

marginal thinking

A

the evaluation of whether the benefit of acquired one more unit of something is greater than its cost

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8
Q

Fourth Principle of Economics

A

incentives matter

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9
Q

Incentives

A

something that induces a person to act (e.g. grades, prices, legal sanctions, regulations, promotions, tips, reputation, etc)

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10
Q

Fifth Principle of Economics

A

trade is beneficial

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11
Q

The Invisible Hand

A

Position by Adam Smith that when everyone is motivated by self-interest, they act as if guided and the results are always what is best for the economy as a whole

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12
Q

Sixth Principle of Economics

A

markets are often best at organizing economic activity

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13
Q

Utility functions

A

the amount of pleasure or satisfaction a consumer gains from consuming a good

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14
Q

Seventh Principle of Economics

A

legal institutions can improve market outcomes

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15
Q

property law

A

the branch of law which offers you remedy when your property rights have been violated (the basis of all markets)

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16
Q

market failure

A

A situation in which the market outcome appears suboptimal, which may be improved upon by government intervention

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17
Q

Types of market failure

A

Monopolies and market power;
Externalities;
Public Goods;
Informational Asymmetry

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18
Q

government failure

A

A situation where government interference in the market to solve an apparent market failure creates a worse outcome

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19
Q

The Scientific Method

A

Observation > question > hypothesis > gather data > test hypothesis > reject (and start a new hypothesis) OR fail to reject (hypothesis becomes theory)

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20
Q

positive statement

A

A statement of fact which describes how the world is and can be scientifically tested (falsifiable)

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21
Q

normative statement

A

A value judgement which describes how the world ought to be and cannot be tested

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22
Q

microeconomics

A

the study of how individuals, households, and firms make decisions and how they interact in markets

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23
Q

macroeconomics

A

the study of economy-wide phenomena

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24
Q

a model

A

a simple representation of some aspect of the world; can be graphical, theoretical, or mathematical

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25
Q

a signal

A

a pattern underlying a set of data

26
Q

a noise

A

a random fluctuation in data with no underlying meaning

27
Q

Production Possibilities Frontier (PPF)

A

A graphical representation of the maximum amount of any two products that can be produced from a fixed set of resources

28
Q

Why is the PPF bowed out?

A

Increasing opportunity cost; not all resources are equally productive in all cases (Law of Increasing Opportunity Cost)

29
Q

When is the PPF not bowed out?

A

when the resources are perfectly substitutable (equally productive)

30
Q

indifference point

A

when the total costs for both options are exactly equal; you could flip a coin to decide

31
Q

shifting the PPF

A

the only shifters are the factors of production; keep an eye out for things that only shift one side of the PPF

32
Q

factors of production

A

land, labor, capital, and entrepreneurship

33
Q

capital goods

A

goods used to produce other goods (not the finished product)

34
Q

consumer goods

A

used in the present to achieve some satisfaction (finished goods)

35
Q

comparative advantage

A

you can gain by specializing in producing what you do well and exchanging that production for something that you would have trouble making

36
Q

how to divide goods from specialization and trade

A

split the excess, not the total; divide what each party would’ve had without specialization and then take the extra gained from specialization and split it in half

37
Q

excess surplus

A

any unexpended and unencumbered amount of goods or resources

38
Q

absolute advantage

A

the ability to produce a good using fewer inputs than another producer

39
Q

absolute equality

A

everyone is equal in their ability to produce a good; i.e. they all use the same number of inputs to produce the same number of outputs

40
Q

personal valuation

A

the worth that an individual places on an asset, good, or service

41
Q

a market is…

A

a group of buyers and sellers of a particular good or service

42
Q

competition is…

A

the method used under social cooperation to improve one’s own welfare

43
Q

The Law of Demand

A

ceteris paribus, there is an inverse relationship between the price of a good or service and the quantity that people are willing to buy of that good or service

44
Q

ceteris paribus

A

holding everything else constant

45
Q

Diminishing Marginal Utility

A

each additional unit of a product has less and less value

46
Q

Determinants of Demand

A
  1. change in income
  2. change in taste or preference
  3. change in the price of related goods (substitutes or complements)
  4. change in the number of buyers
  5. change in expectations
47
Q

normal goods

A

normal, usual, typical goods that you buy when you have enough money for it

48
Q

inferior goods

A

worse versions of normal goods that you buy when you cannot afford normal goods

49
Q

substitute goods

A

goods that compete with each other and can be exchanged for one another

50
Q

complementary goods

A

goods typically used or bought together

51
Q

Law of Supply

A

ceteris paribus, there is a direct relationship between the price of a good or service and the quantity that people are willing to supply of that good or service

52
Q

reservation price

A

a limiting price; the highest a buyer is willing to pay or the lowest a seller is willing to accept

53
Q

Determinants of Supply

A
  1. change in input costs
  2. change in technology
  3. change in government policy
  4. change in the number of sellers
  5. change in expectations
54
Q

Equilibrium

A

the quantity demanded and the quantity provided are exactly equal; the price that buyers are willing to pay and the price that sellers are willing to take is exactly equal

55
Q

shock

A

a change in equilibrium; something happens to the market to shake it up

56
Q

how to analyze changes in equilibrium?

A
  1. decide which curve shifts (supply, demand, or both)
  2. determine the direction of the shift
  3. use the diagram to determine what happens to the equilibrium price/quantity
57
Q

shortage

A

when demand outstrips supply

58
Q

surplus

A

when supply outstrips demand

59
Q

how to deal with supply and demand as equations

A
  1. solve each for one variable (y)
  2. set the equations equal to each other and solve for the remaining variable (x)
  3. plug x back into one of the original equations to get y
60
Q

price ceilings

A

the government artifically sets the price below equilibrium

61
Q

price floors

A

the government artificially sets the price above equilibrium

Microeconomics (5 decks)

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