Econ Exam 2 Flashcards
Positive Economics
Words/Statements that are objective and verifiable –> “what is”
Normative Statements
Involves a value judgement –> “what ought to be”
Efficient Outcome
The outcome that yields the largest possible economic surplus
Consumer Surplus
The difference between how much you are willing to pay for something and how much you actually pay for something
Willingness to Pay
The maximum price at which a consumer would buy a good
Deadweight Loss
Measures how far economic surplus falls below the efficient outcome
Rational Rule for Markets
To increase economic surplus, produce more of an item if the marginal benefit of one more is greater than, or equal to, its marginal cost
Market Failure
When the forces of supply and demand lead to an inefficient outcome
Absolute Advantage
The ability to carry out a task more efficiently than other people
Comparative Advantage
The ability to carry out a task at a lower opportunity cost than other tasks
Opportunity Cost of a Task
How much of an alternative good you can produce if you don’t do this task
Trade Costs
The extra costs that are incurred as a result of buying or selling overseas rather than domestically
Relative Abundance
Sell what you have a lot of, buy what you don’t have much of
Specialized Skills
Even when land, labor, and capital are all similar, better production techniques will lower your opportunity costs –> “learn by doing”
World Supply
Total quantity of a good supplied by all manufacturers around the world, at each price
World Demand
Total quantity of a good demanded by all buyers around the world, at each price
Domestic Demand Curve
The quantity of goods that all domestic buyers plan to buy at each price
