Econ Midterm #1 Flashcards
Scarcity
the condition that arises bc wants exceeds the ability of resources to satisfy them (we must choose among available alternatives)
Economics
is the social science that studies the choices that individuals, businesses, and governments make as they cope with scarcity, the incentives that influence those choices, and the arrangement that coordinate them.
Microeconomics
the study of the choices that individuals and businesses make and the way these choices interact and are influenced by governments.
Macroeconomics
the study of the total effects on the national economy and the global economy of the choices that individuals, businesses, and governments make.
Economic ?’s
- How do choices determine what, how, and for whom goods and services get produced?
- When do choices made in self-interest also promote the social interest?
goods and services
are objects and actions that people value and product to satisfy human wants
what
goods and services get produced and in what quantities
How
goods and services get produced and in what quantities
For whom
are the various goods and services produced (this depends on the income that people earn and the prices they pay for goods and services)
Self interest
choices that are best for the individual who makes them
social interest
the choices that are best for a society as a whole
trade off
an exchange (giving up something for something else)
Opportunity cost
is the best thing that you must give up to get something – the highest valued alternative forgone (example: professor gives up spending time with family in order to teach)
marginal cost
is what you must give up to get one additional unit of it
Marginal benefit
is the what you gain when you get one more unit of something (is measured by what you are willing to give up to get one additional unit of it)
normative statements
disagreements that cant be settled by facts
positive statements
disagreements that can be settled by facts
cross section graph
shows value of an economic variable for different groups in a population at a point in time
Ex: a graph that shows SAT scores of male and female students in 2012 is a cross section graph
ceteris paribus
“other things remaining the same”- this assumption is used when graphing a relationship that involves more than two variables
production possibilities frontier
boundary between the combination of goods and services that can be produced and the combinations that cannot be produced given the available factors of productions and the state of technology
production efficiency
a situation in which we cannot produce more of one good or service without producing less or something else
free lunch
- a gift or getting something without giving up something else
On a PPF there are 500 lb apple and 1200 lb bananas and at another point there is 300 lb and 1300 lb bananas the opportunity cost of producing bananas is
200 apples/ 100 bananas = 2 lb apples
economic growth
sustained expansion of production possibilities (when an economy’s resources increase, its production possibilities expand and its PFF shifts outward)
absolute advantage
when a nation is more productive than another (needs fewer inputs or takes less time to produce a good or perform a production task. Nations gain from specializing in production of the goods in which they have a comparative advantage and then trading.
comparative advantage
is the ability of a person to perform an activity or produce a good or service at a lower opportunity cost than someone else.
If the PFF between two goods were a straight line (the resources are equally productive and then the OC of one good in terms of another would be
constant
In a PPF the cost of producing more units of a good is measured by
the amount of the other good or service that must be forgone
The concave shape of the production possibilities curve implies that as production of one good increases, society must forgo
increasing amounts of another good
- To increase economic growth a nation should encourage education because
it increases quality of labor
In the production possibilities frontier model, an unattainable point lies
outside the PPF
Gasoline prices increase by 50% and other things remain the same. The quantity demanded
decreases
An advertising company puts out successful advertising campaign that makes most people want to buy milk… as a result the demand for milk
increases
Markets
any arrangement that brings buyers and sellers together
competitive markets
has so many buyers and so many sellers that no individual buyer or seller can influence the price
Quantity demanded
the amount of a good, service, or resource that people are willing and able to buy during a specified period at a specified price
law of demand
if the price of a good rises, the quantity demanded of that good decreases
If the price of the good falls, the quantity demanded of the good increases
demand
the sum of the demands of all buyers in a market, the market demand curve is the horizontal sum of the demand curves of all buyer in the market
Market Demand
the sum of the demands of all buyers in a market, the market demand curve is the horizontal sum of the demand curves of all buyer in the market
substitute
a good that can be consumed in place of another good (the demand for a good increases if the price of one substitute rises, the demand for a good decreases if the price of one substitute falls)
complement
a good consumed with another good, the demand for a good increases if the price of one of its complements falls, the demand for a good decreases if the price of one of its complements rises
rise of expected future price
Increases the current demand for the good
normal good
a good for which the demand increases if the income increases and the demand decrease if income decreases.
inferior good
a good for which the demand decreases if income increases and the demand increases if income decreases
Preferences
when preferences change the demand for one item increase and the demands for another item decreases (The preferences change when people become better informed and new goods become available)
quantity supplied
amount of a good, service or resource that people are willing and able to sell during a specified period at a specified price
law of supply
if the price of a good rises, the quantity supplied of that good increases. if the price of the good falls, the quantity supplied of that good decreases
supply
the relationship between the quantity supplied of a good and the price of the good when all other influences on selling plans remain the same
An increase in productivity
lowers the cost and increases supply
market equilibrium
occurs when the quantity demanded equals the quantity supplied (the buyer and sellers plan are consistent)
equilibrium price
the price at which the quantity demanded equals the quantity supplied
Equilibrium quantity
the quantity bought and sold at the equilibrium price.
shortage- occurs when the quantity demanded exceeds the quantity supplied (causes price to rise)
Assume a competitive market is in equilibrium. There is an increase in demand, but no change in supply. As a result, the equilibrium price_____, and the equilibrium quantity ______
(rises, increases)
When the demand curve shifts rightward and the market moves to a new equilibrium, then the ________
quantity supplied increases
If the supply of solar panels increases _________
the price goes down and the quantity increases
The equilibrium price of movie tickets is 10$. If the supply curve for the movies shifts _______, the equilibrium price will ______
(rightward, decrease)
surplus
occurs when the quantity supplied exceeds the quantity demanded (causes price to fall
when demand changes…
the supply curve does NOT shift, change in quantity supplied, equilibrium price and quantity change in same direction as demand
when supply changes…
the demand curve does NOT shift, changed in quantity demanded, equilibrium price changes in opposite direction as supply, equilibrium quantity changes in same direction as supply
