Chapter 1-5 Flashcards
What is economics?
the study of how humans make decisions in the face of scarcity
What is scarcity?
The human want for goods and services exceeds what’s available
What are Command Economies?
a single entity decides how labor and resources are distributed.
What is Microeconomics?
The study of decisions made by households and firms
What is Macroeconomics?
The study of the economy as a whole.
What is the Budget Constraint Model?
A model illustrating the range of choices you can make between two goods within a particular budget.
What is the Production Possibilities Frontier?
a model showing the tradeoff between two goods a society can specialize in
What is the Law of Diminishing Return?
As additional resources are devoted to producing a good or service, the marginal benefit from that increment is declining
What is Productive Efficiency?
it is impossible to produce more of one good without decreasing the output of another good.
What is Allocative Efficiency?
the bundle of goods that maximizes society’s desires.
What are Sunk Costs?
Costs that are made in the past and cannot be recovered
What are Positive Statements?
facts or things that can be proven to be facts
What are Normative Statements?
A statement that describes how the world “should be”
What is a Demand Schedule?
a table that shows the quantity demanded at each price.
What is a Demand Curve?
a graph that shows the quantity demanded at each price
What is the Law of Demand?
As price increases quantity demanded decreases.
What is the Law of Supply?
as price increases, quantity supplied increases
What are the factors that shift the demand curve?
Change in preferences
Change in the composition of the population
Changes in price
Change in income
What are normal goods?
a good that you buy more of as your income increases
What are inferior goods?
A good that you buy less of as your income increases
What is a substitute?
A good that can replace another (e.g. Coke and Pepsi, name brand vs generic brand)
What are compliments?
goods that are often used together so that consumption of goods tends to enhance consumption of the other. (e.g. hot dogs and hot dog buns)
What are the factors that shift supply?
Natural Conditions
Change in Input Prices
Technology
What is a Price Ceiling?
a legal maximum price
What is a Price Floor?
a legal minimum price
What are the factors that shift the labor demand?
Demand for Output
Education and Training
Technology
Number of Companies
Government Regulation
Price and Availability of Other Inputs
What are the factors that shift the supply of labor?
Number of Workers
Required Education
Government Policies
What is a Minimum Wage?
The price floor of the labor market
What does it mean if demand or supply is inelastic?
when the price goes up or down, consumers’ buying habits stay about the same.
What does it mean if demand or supply is elastic?
as price went up or down, customers buying habits changed dramtically
