econ Flashcards
percentage change
value in second period-value of first period divided by first value multiplied by 100
opportunity cost
the value of the best alternative
absolute advantage
the ability to produce more of a good/service than competitors using same amount of resources
comparative advantage
the ability to produce a good/service at a lower opportunity cost than other producers
economics
the study of choices people make to attain their goals, given their scarce resources
scarcity
a situation in which unlimited wants exceed the limited resources available to fufill those wants
rational
people make choices based on what they believe will make them happy
marginal cost/benefit
the additional cost or benefit associated with a small amount extra of some action
market
a group of buyers and sellers of a good or service
mixed economy
some central planning and some markets (CAN)
productive efficiency
where goods and services are produced at the lowest possible cost
allocative efficiency
where production is consistent with consumer preferences, marginal benefit of production=marginal cost
positive analysis
analysis relying on facts or logic, economies should stick to positive analysis
normative analysis
analysis relying on value judgements
microeconomics
the study of how households and firms make choices, how they interact in markets, and how the gov’t attempts to influence
macroeconomics
the study of the economy as a whole
technology
the processes a firm uses for turning inputs into outputs of goods and services
capital
durable manufactured goods that are used to produce other goods/services
model
simplified version of reality, shows essential details only
production possibilities frontier (PPF)
a curve showing the maximum attainable combinations of 2 products that may be produced with available resources
economic growth
the ability of the economy to increase the production of goods/services
trade
the act of exchanging one thing for another
free market
one with few gov’t restrictions on how a good/service can be produced or sold
property rights
the rights individuals or firms have to the exclusive use of their own property
3 characteristics or perfect competition
1) many buyers and sellers
2) identical products
3) no barriers to entry
demand curve
shows relationship between the price of a product and the quantity demanded
market demand
the demand by all consumers of a given good or service
law of demand
when the price falls, quantity demanded will rise
substitution effect
the change in quantity demanded due to a change in price making the good more/less expensive relative to other goods
income effect
the change in the quantity demanded due to the effect of a change in a good’s price on comsumers purchasing power
normal good
a good for which the demand increases as income rises (vacations, restaurant meals)
inferior good
a good for which the demand decreases as income rises (ramen noodles)
substitutes
goods and services that can be used for the same purpose (Big Mac, Whopper)
complements
goods and services that are used together (burger and fries)
supply curve
shows relationship between price of a product and the quantity supplied
the law of supply
holding everything else constant, when the price rises quantity supplied increases
market equilibrium
a situation in which quantity demanded equals quantity supplied
surplus
a situation where Qs is greater than Qd
shortage
a situation where Qd is greater than Qs
consumer surplus
the difference between the highest price a consumer is willing to pay vs what they actually pay
producer surplus
the difference between the lowest price a firm would be wiling to accept a good/service and the price it actually recieves
marginal benefit
the additional benefit to a consumer from consuming one more unit of a good or service
marginal cost
the additional cost to a firm of producing one more unit of a good or service
economic efficiency
a market outcome in which the MB to consumers of the last unit produced is equal to its MC of production
deadweight loss
the reduction in economic surplus resulting from a market not being in competitive equilibrium
price ceiling
a legally determined maximum price sellers can charge
price floor
a legally determined minimum price that sellers may receive
black market
a market in which buying and selling take place at prices that violate gov’t price regulations
tax incidence
the actual division of the burden of a tax between buyers and sellers in a market
externality
a benefit or cost that affects someone who is not directly involved in the production or consumption of a good/service
private benefit
the benefit received by the consumer of a good or service
social benefit
the total benefit from consuming a good/service including the private benefit and any external benefit
market failure
a situation in which the market fails to produce the efficient level of output
transaction costs
costs in time and other resources that parties incur during the process of agreeing to and carrying out an exchange
subsidy
an amount paid to producers or consumers to encourage the production or consumption of a good
rivalry
situation that occurs when one persons consuming a unit of a good means no one else can consume it
excludability
situation in which anyone who does not pay for a good cannot consume it
budget constraint
the limited amount of income available to consumers to spend on goods/services
network externalities
situations in which the usefulness of a product increases w/ the number of consumers who use it
technological change
a change in the ability of a firm to produce a given level of output with given quantity of inputs
explicit costs
a cost that involves spending money
implicit costs
a non monetary opportunity cost
