econ vocab test 1

Question 1

microeconomics

Answer 1

small econ
individuals (consumer and firm)
market interactions
Govt. taxes, subsidies, and regulations

Question 2

macroeconomics

Answer 2

aggregate variables (GDP, inflation, unemployment)
cause and effect relationships
Govt. monetary and fiscal policy

Question 3

Positive economics

Answer 3

looks at what is, and how things work, facts

Question 4

Normative economics

Answer 4

looks at what should be, what is “best”

Question 5

Maximize utility

Answer 5

consumers seek utility which means happines

Question 6

Maximize profit

Answer 6

producers seek profit which, when spent, can be converted to utility

Question 7

Opportunity Cost

Answer 7

the value of the next best alternative action

Question 8

Trade offs

Answer 8

if you do one thing, it means you can’t do something else

Question 9

Diminishing marginal utility

Answer 9

the more we consume of a good the less utility each new unit brings

Question 10

Productivity

Answer 10

the amount of output that can be produced by an economic agent in a specific time period

Question 11

Production Possibilities Curve/Frontier

Answer 11

A graphical representation of the different combinations of total output that can be produced by an economic agent by utilizing all available resources

Question 12

Efficient points

Answer 12

ones located on the line of the PPC

Question 13

inefficient points

Answer 13

are ones inside the line of the PPC, feasible but not the best option

Question 14

infeasible/impossible points

Answer 14

outside the line, don’t work

Question 15

Slope of the PPC

Answer 15

the opportunity cost for whatever is on the X axis is equal to the slope!!!, always negative

Question 16

Absolute advantage

Answer 16

term used to describe the economic agent that can produce the highest quantity of a particular good. (whoever can produce the most)

Question 17

Comparative advantage

Answer 17

term used to describe the economic agent that can produce a particular good for the smallest opportunity cost.
Cant have comparitive advantage in both goods

Question 18

indifference curves

Answer 18

lines that show all combinations of the 2 goods that result in the same level of utility.
bowed to the origin
curviness is result of diminishing marginal utility

Question 19

terms of trade

Answer 19

the price of one good in terms of another that is mutually agreed upon

Question 20

pareto optimal

Answer 20

both parties are benefitting equally

Question 21

budget constraint

Answer 21

a representation of how much money we have and how many goods we can afford to purchase

Question 22

budget set

Answer 22

points that we can also afford but we wouldn’t be using all of our money

Question 23

equilibrium

Answer 23

occurs when the marginal benefit per dollar spent is equal across all goods

Question 24

Demand

Answer 24

the relationship between your willingness to pay or buy a good and the quantity you would purchase

Question 25

quantity demanded

Answer 25

each point on the demand curve is the quantity demanded at that price

Question 26

Inferior goods

Answer 26

these are goods whose demand shifts LEFT with an increase in income

Question 27

Law of demand

Answer 27

If the price of a good goes up, the quantity demanded goes down

Question 28

consumer surplus

Answer 28

top triangle

Question 29

Price elasticity of demand

Answer 29

measures how much your quantity demanded would decrease with an increase in price

Question 30

income elasticity

Answer 30

measures your sensitivity of consumption to changes in income

Question 31

income elasticity < 0

Answer 31

inferior good

Question 32

income elasticity > 0

Answer 32

normal good

Question 33

price elasticity > 1

Answer 33

elastic

Question 34

price elastic < 1

Answer 34

inelastic

Question 35

income elasticity > 1

Answer 35

luxury good

Question 36

luxury good

Answer 36

good that sees a more proportional increase in demand for increase in income

Question 37

Cross price elasticity

Answer 37

measures the sensitivity of your demand for good A to changes in price of a related good B

Question 38

Cross price elastcity < 0

Answer 38

the goods are complements

Question 39

cross price elasticity > 0

Answer 39

goods are substitutes