econ vocab test 1 Flashcards
microeconomics
small econ
individuals (consumer and firm)
market interactions
Govt. taxes, subsidies, and regulations
macroeconomics
aggregate variables (GDP, inflation, unemployment)
cause and effect relationships
Govt. monetary and fiscal policy
Positive economics
looks at what is, and how things work, facts
Normative economics
looks at what should be, what is “best”
Maximize utility
consumers seek utility which means happines
Maximize profit
producers seek profit which, when spent, can be converted to utility
Opportunity Cost
the value of the next best alternative action
Trade offs
if you do one thing, it means you can’t do something else
Diminishing marginal utility
the more we consume of a good the less utility each new unit brings
Productivity
the amount of output that can be produced by an economic agent in a specific time period
Production Possibilities Curve/Frontier
A graphical representation of the different combinations of total output that can be produced by an economic agent by utilizing all available resources
Efficient points
ones located on the line of the PPC
inefficient points
are ones inside the line of the PPC, feasible but not the best option
infeasible/impossible points
outside the line, don’t work
Slope of the PPC
the opportunity cost for whatever is on the X axis is equal to the slope!!!, always negative
Absolute advantage
term used to describe the economic agent that can produce the highest quantity of a particular good. (whoever can produce the most)
Comparative advantage
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
indifference curves
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
terms of trade
the price of one good in terms of another that is mutually agreed upon
pareto optimal
both parties are benefitting equally
budget constraint
a representation of how much money we have and how many goods we can afford to purchase
budget set
points that we can also afford but we wouldn’t be using all of our money
equilibrium
occurs when the marginal benefit per dollar spent is equal across all goods
Demand
the relationship between your willingness to pay or buy a good and the quantity you would purchase
quantity demanded
each point on the demand curve is the quantity demanded at that price
Inferior goods
these are goods whose demand shifts LEFT with an increase in income
Law of demand
If the price of a good goes up, the quantity demanded goes down
consumer surplus
top triangle
Price elasticity of demand
measures how much your quantity demanded would decrease with an increase in price
income elasticity
measures your sensitivity of consumption to changes in income
income elasticity < 0
inferior good
income elasticity > 0
normal good
price elasticity > 1
elastic
price elastic < 1
inelastic
income elasticity > 1
luxury good
luxury good
good that sees a more proportional increase in demand for increase in income
Cross price elasticity
measures the sensitivity of your demand for good A to changes in price of a related good B
Cross price elastcity < 0
the goods are complements
cross price elasticity > 0
goods are substitutes
