Chapter 1-Ten Principles Of Economics Flashcards
Economics
The study of how society manages its scarce resources.
Firm
Group of people grouped together to produce goods/services
Max profit
Revenue-costs
Revenue
What you earn from something
Efficiency
Society achieved max benefits from its scarce resources (max total production/total income)
Equity
Economic benefits are distributed uniformly (how income is distributed)
Opportunity cost
What you give up to get an item
Explicit cost
Monetary cost (ex. Firm pays employee/person pays for coffee)
Implicit cost
Something you give up but do not explicitly pay for (ex. give up sleep to go to school)
Scarcity
The limited nature of society’s resources
Incentive
Something that induces people to act
Inflation
An increase in the overall level of prices in the economy
Production possibility frontier
A graph that shows combinations of two goods that can be produced with available factors of production and existing technology
Production is Efficient
- resources are fully employed
- producing more of one good requires you to give up some of the other good
Total benefit
Revenue generated by all customers for all advertising hours
Total cost
Total amount spent for all hours of advertising
Net benefit
Total benefit minus total cost
Marginal benefit
Revenue generated by the additional customers gained from the last hour of advertising
Marginal cost
Cost of the last hour of advertising
Comparative Advantage
The ability to produce a good at a lower opportunity cost than another producer
Absolute advantage
The ability to produce a good using fewer inputs than another producer
Competitive market
- many buyers/sellers so each has a negligible impact on market price
- the good being sold is standardized
- buyer/seller aware of the prices others are paying/charging
Normal good
If I come rides then demand rises
Inferior good
If I come rises then demand falls
Law of supply
An increase in price of good will cause an increase in quantity supplied
Quantity supplied
The amount sellers are willing and able to sell
Law of demand
An increase in price of a good will cause a decrease in quantity demanded of good
Quantity demanded
The amount buyers are willing and able to purchase
