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Econ 101 > Exam 1 > Flashcards

Exam 1 Flashcards

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1
Q

What is economics?

A

The study of the allocation of scarce resources.

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2
Q

How do we determine how resources are distributed?

A

Economists create models to analyze the world

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3
Q

What is a model?

A

A model is a simplified description of reality

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4
Q

All economic models have…

A

Decision makers (agents), Choices agents can make, Payoffs (to agents) as a result of these choices

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5
Q

Who are agents?

A

Generic decision makers, Consumers, Households, Firms

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6
Q

Economists use models to study…

A

How agents make decisions, how agents’ decisions interact with one another, how these decisions aggregate and affect the economy as a whole.

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7
Q

What is microeconomics?

A

In micro the decision makers are “small” usually individuals, households, and firms

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8
Q

What is an opportunity cost?

A

Whatever must be given up to obtain something

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9
Q

Rational agents

A

Choose the best option given the alternative

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10
Q

Marginal changes

A

small incremental adjustments to a plan of action

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11
Q

Rational decision makers

A

Make decisions by comparing marginal benefits and marginal costs. They make a choice if Marginal Benefits > Marginal Costs

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12
Q

Incentive

A

Something that induces an agent to act

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13
Q

Trade

A

Allows each agent to specialize in the activities they have a comparative advantage in

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14
Q

What does the government choose in a centrally planned government?

A

What goods and services are produced, how much to produce, who should produce and consume these goods and services

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15
Q

In a price setting competitive market

A

goods are allocated through decentralized decisions of many firms and households

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16
Q

Efficiency

A

Does society achieve the maximum benefit from its scarce resources

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17
Q

(in)Equality

A

Do we care if economic prosperity is/is not distributed uniformly across individuals?

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18
Q

Property rights

A

The ability of an agent to own and exercise control over economic goods

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19
Q

Market failure

A

a situation in which the market, left on its own, fails to allocate resources efficiently

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20
Q

Externality

A

Anything that affects an agent’s payoff that they DO NOT CHOOSE to consume. They are not allocated efficiently by the market

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21
Q

Market power

A

Ability of a single economic actor to have a substantial influence on market prices

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22
Q

Monopoly

A

one seller

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23
Q

oligopoly

A

a few sellers

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24
Q

cartels

A

a few sellers acting as one

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25
Q

monopsony

A

one buyer

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26
Q

Economists

A

devise theories,
collect data,
analyze these data, verify or refute their theories, use the scientific method

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27
Q

Scientific method

A

develops and tests theories about how the world works. Observation, theory, more observation

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28
Q

assumptions

A

simplify the complex world to make it easier, and possible, to understand

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29
Q

Circular flow diagram

A

schematic representation of the organization of the economy: factor market, households, product market, businesses

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30
Q

PPF

A

shows all feasible combinations of output that an economy can produce. The output is feasible given the available factors of production and production technology

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31
Q

Efficient

A

we can’t increase one output without decreasing another

32
Q

inefficient

A

we can produce more without giving anything up

33
Q

Positive statements: descriptive

A

attempt to describe the world as it is

34
Q

Normative statements: prescriptive

A

attempt to prescribe how the world should be

35
Q

rent control

A

adversely affects availability and quality of housing, and is a costly way of redistributing wealth

36
Q

trade barriers

A

tariffs and quotas: generally bad

37
Q

voluntary trade

A

generally mutually beneficial

38
Q

trade

A

the exchange of goods and services

39
Q

absolute advantage

A

ability to produce a good using fewer inputs than another producer

40
Q

comparative advantage

A

one producer can produce x at a lower opportunity cost than another

41
Q

If R has a comparative advantage in m

A

F has a comparative advantage in P

42
Q

specialization

A

devoting resources to production of one good relative to another

43
Q

trade equilibrium

A

the equilibrium price of trade must lie In between the two opportunity costs

44
Q

transaction costs

A

anything that adds cost to trade: time it takes to bargain, cost of searching for a good, uncertainty over quality of a good, enforcing property rights over goods

45
Q

Price setting competitive market

A

market that uses prices to allocate goods and services in which every agent is a price taker

46
Q

allocation

A

distribution of goods and services across agents

47
Q

market

A

group of buyers and sellers of a particular good or service OR a way of organizing exchange of goods and services (a means of reaching an allocation)

48
Q

money

A

medium of exchnage

49
Q

price taker

A

agent that believes they have no control of effect on prices

50
Q

characteristics of a competitive market

A

Many buyers and sellers of one good, prices are transparent, free entry/exit, transaction costs are low

51
Q

competitive equilibrium

A

allocation and a set of prices where every consumer is maximizing their payoff and every firm is maximizing profit

52
Q

Non-competitive markets

A

agents are not price takers

53
Q

demand curve

A

models the quantity demanded as a function of the market price; function that gives quantity demanded for any price

54
Q

Law of Demand

A

when p increases, D decreases, demand is downward sloping

55
Q

demand schedule

A

shows quantity demanded for a set of prices

56
Q

Market Demand

A

Sum of Individual Demand

57
Q

How does a change in price affect the demand curve?

A

any change in price brings us to a new point on the demand curve

58
Q

Shift in the demand curve

A

any change that increases the quantity demanded shifts to the right; any change that decreases the quantity demanded shifts left

59
Q

Variables that affect demand

A

income, prices of related goods, references, expectations, number of buyers

60
Q

substitute

A

if an increase in price leads to an increase in demand for the other (shift to the right for the other good)

61
Q

complements

A

an increase in price of one leads to a decrease in demand for the other (shift to the left for the other good)

62
Q

Normal good

A

an increase in income leads to an increase in demand (shift to the right)

63
Q

inferior goods

A

relatively low quality goods that have relatively high-quality substitutes

64
Q

Tastes and preferences

A

Demand is determined by preferences, so any change in preference will change demand

65
Q

Expectations about the future

A

if you expect an increase in income or future prices, you may increase in current demand

66
Q

Supply curve

A

model of quantity supplied as a function of the market price

67
Q

profit

A

revenue - cost

68
Q

revenue

A

total money collected through sales

69
Q

cost

A

total money spent on production

70
Q

“law” of supply

A

when p increases, s increases; supply is upward sloping

71
Q

supply schedule

A

table showing quantity supplied for a set of prices (so it shows supply for a finite number of prices)

72
Q

market supply

A

total quantity supplied in a market as a function of price

73
Q

competitive equilibrium

A

allocation and set of prices so every consumer can maximize their payoff, every firm maximizes payoff, and total production = total consumptioni

74
Q

surplus

A

quantity supplied > quantity demanded

75
Q

shortage

A

quantity demanded > quantity supplied

Econ 101 (1 decks)

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