Concepts Flashcards
What is Economics
The study of the allocation of scare resources
What is scarcity
When the demand for a good or service is greater than the quantity of it
What is opportunity cost?
The value of the next best use of a scarce resource
What is positive analysis
Analysis of how things actually work
What is normative analysis
An analysis of how things should work
What is the law of demand?
As price increases, quantity demanded decrease
What is demand
The desire, willingness, and ability for consumers to pay a certain price for a certain good.
What does ceteris paribus mean?
All else equal
What shifts demand?
Population, income, preferences, quality of a good, price of substitutes
What is supply?
The total quantity of a good that producers are willing to to provide
Why does demand slope down?
Because as price increases, consumers’ marginal willingness to pay decreases. This is due to the law of demand.
Why does supply slope up?
Rising prices induce additional supply for suppliers who have a opportunity cost of giving up a resource.
What are diminishing marginal returns?
Diminishing marginal are proportionally smaller profits or benefits derived from producing a good as more money is invested in it.
What are shifts In the supply curve?
Anything that changes opportunity cost: wages, price of inputs, taxes, subsidies, trade barriers, tech.
What causes movement along the supply curve
Changes in quantity of a good.