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First Semester > Economics Chap 1-3 > Flashcards

Economics Chap 1-3 Flashcards

The economic problem

1
Q

Firms

A

Organization which buy these factors and use them to produce goods and services

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2
Q

Economy

A

All the production and exchange activities that take every day

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3
Q

Economic activity

A

Is how much buying and selling goes on in the economy over a period time

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4
Q

Scarcity

A

Mean that the society as limited resources and therefore cannot produce all the goods and services people wish to have

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5
Q

Economics

A

The study of how society manages its scarce resources

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6
Q

Efficiency vs Equity

A

Efficiency means society get the most that it can from its scarce resources
Equity means the benefits of those resources are distributed fairly amongst members of society

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7
Q

Market Economy

A

An economy allocates resources through the decentralized households and firms as they interact in markets for goods and services

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8
Q

Market failure

A

Occurs when the market fails to allocate resources efficiently

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9
Q

Market failure may be caused by:

A

Externality: Which is the impact of one person or firms actions on the well being of a bystander
Market power: The ability of a single person or firm to unduly influence market price

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10
Q

Economic growth

A

The increase in the amount of goods and services in an economy over a period of time

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11
Q

GDP per head

A

The market value of all final goods and services produced within a country in a given period of time divided by the population of the country, to give a per capita figure

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12
Q

Standard of living

A

A measure of welfare based on the amount of goods and services a person’s income can buy

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13
Q

Causes of inflation

A

The growth in the quantity of money
When the gov creates large quantities of money, the value of money falls
High inflation imposes various costs on society

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14
Q

Feminist economics
Marxist economics
Austrian school

A

Makes the cause for including unpaid work such as that carried out in the home
Not the control and power that some have over production
Say markets should be allowed to work without gov interference

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15
Q

Inductive reasoning

A

The process of observation from which patterns might be formed which evidence for a hypothesis which may lead to a theory

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16
Q

Deductive reasoning

A

Begins with a theory from which a hypothesis is drawn

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17
Q

Rationalism

A

Is where ‘truths’ are established through reason and intellectual deduction rather than appealing to emotion or the senses

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18
Q

Economists use which models to simplify reality in order to improve our understanding of the world?

A

Endogenous-a variable whose value is determined within the model
Exogenous-a variable whose value is determined outside the model

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19
Q

Positive vs Normative analysis

A

Positive statements are statements that attempt to describe the world as it is(descriptive analysis)

Normative statements are statements about how the world should be(prescriptive analysis)

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20
Q

Supply and demand

A

refer to the behavior of people as they interact with one another in markets

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21
Q

What is a market?

A

A group of sellers and buyers of a particular good or service

22
Q

Competitive market

A

A market in which there are many buyers and sellers so that each as a negligible impact on the market price

23
Q

Quantity demanded

A

is the amount of a good that buyers are willing and able to purchase

24
Q

Law of demand

A

Is the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

25
Q

Market demand

A

Refers to the sum of all individual demands for a particular good or service

26
Q

Shift vs Movement

A

Shift is caused by a factor affecting demand other than a change in price

Movement is along the demand curve caused by a change in the price of the product

27
Q

Substitutes vs Complements

A

Substitutes-increase of one good leads to an increase in the demand for the other
Complements-Increase in the price of one good leads to a decrease in the demand for the other

28
Q

Normal good vs Inferior good

A

Normal good-if the demand for a good falls when incomes falls or rises as income rises

Inferior good-the demand for a good becomes less when the income rises

29
Q

Shifts caused by the factors other than price

A

Tastes
No. of buyers
Advertising
Expectations of consumers where demand is influenced by expectations of future income and future prices
Promotions

30
Q

Market supply

A

Refers to the sum of all individual supplies for all sellers of a particular good and/or service

31
Q

Ceteris paribus

A

Other factors affecting demand are held constant so that we can analyze the effect of a change in price on the demand

32
Q

Surplus vs Shortage

A

Price>equilibrium price, the quantity supplied>quantity demanded

When price<equilibrium price, then quantity quantity demanded>quantity supplied

33
Q

Law of supply and demand

A

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

34
Q

What is the main function of price

A

Price in a free market is to act as a signal to both buyers and sellers

35
Q

Buyers vs seller

A

Buyers-the price tells them something about what they have to give up to acquire the benefits
Sellers-Price acts as a signal in relation to the profitability of production

36
Q

Perfectly competitive market

A

The goods being offered for sale are all the same
The buyers and sellers are numerous that no single buyer/seller can influence the market price

37
Q

Quantity Supplied

A

The amount that sellers are willing and able to sell

38
Q

Law of supply

A

When the price of the product is more profitable to sell, the price and quantity is positively related to the price of good

39
Q

Elasticity

A

A measure of how much buyers and sellers respond to changes in market conditions

40
Q

Price elasticity of demand

A

A measure of how much the quantity demanded of a good responds to a change in the price of that good

41
Q

The determinants of price elasticity of demand

A

1)Availability of close substitutes(elastic)
2)Necessities vs luxuries(elastic)
3)Definition of the market(inelastic)
4)Proportion of income devoted to the product(elastic)
5)Time horizon(short run-inelastic),(long-run elastic)
6)Productive capacity and the ability of sellers to change the amount of the good they produce
7)Size of the firm or industry
8)Ease of storing stock/inventories
9)Mobility of the factors of production

42
Q

Demand tends to be more elastic:

A

The larger the number of lose substitutes
If the good is a luxury
The more narrowly defined the market
The longer the time period

43
Q

Price elasticity of demand formula

A

percentage change in quantity demanded/percentage change in price

44
Q

Total expenditure

A

The amount paid by buyers, computed as the price of the good x the quantity purchased

45
Q

Total revenue

A

The amount paid by buyers and received by sellers of a good. Computed as the price of the good x the quantity sold

46
Q

Income elasticity of demand measures:

A

How much the quantity demanded of a good responds to a change in consumers income

47
Q

Cross-price elasticity of demand measures:

A

Of how much the quantity demanded of one good responds to a change in the price of another good

48
Q

Price elasticity of supply

A

A measure of how much the quantity supplied of a good responds to a change in the price of that good

49
Q

Inelastic vs elastic

A

Elastic-Quantity demanded responds substantially to changes in the price

Inelastic-Quantity demanded responds only slightly to changes in the price

50
Q

How to tell inelastic and elastic on a graph

A

When demand is vertical-Perfectly inelastic
When demand is horizontal-Perfectly elastic

51
Q

Cross-price elasticity of demand formula

A

Percentage change in quantity demanded of G1/Percentage change in the price of G2

First Semester (13 decks)

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