Exam 1 Flashcards
Incentives, trade-offs, opportunity cost, marginal thinking, trade
reasons to study econ
the changing of only one variable at a time and holding all other things constant
ceterisparibas
a factor that is controlled in a model
endogenous
a factor that is outside of the model
exogenous
a statement that is testable and verified
positive statement
a statement that can not be tested or verified
normative
the highest valued next best alternative that must be sacrificed to obtain something or satisfy a want
opportunity cost
model that shows the maximum amount of any 2 products that can be produced by a society with a fixed amount of resources
production possibilities frontier
when a person can produce a good at a lower opportunity cost they have the …
comparative advantage
If a person has the comparative advantage they should … and …
specialize and trade
there exists an inverse relatioinship between the price of the good and the amount buyers are willing to purchase
the Law of Demand
Movement along the demand curve is only caused by (change in quantity demanded)
change in price
Occurs when something other than price changes (called a change in demand)
a shift in the entire curve
Shifters for ? are changes in income levels, tastes and preferences, prices of related goods, future expectations
Demand
there exists a direct relationship between the price of a good and the amount of it that will be offered for sale
the Law of Supply
Shifters for ? are changes in input costs, technology, taxes and subsidies, expectations
Supply
the market force that pushes markets to equilibrium
Adam Smith’s “Invisible Hand”
the flexibility of a consumer’s desire for a product
price elasticity of demand
looks at how sensitive % change in quantity demanded is to % change in price
price elasticity of demand
more substitutes, a bigger share of the budget, more time, and convenience all cause increased …
elasticity of demand
something is … if the elasticity of demand = 0
perfectly inelastic
something is … if the elasticity of demand is between -1 and 0
relatively inelastic
something is … if the elasticity of demand is between -infinity and -1
relatively elastic
something is … if the elasticity of demand is -infinity
perfectly elastic
measures how a change in income affects spending
income elasticity of demand
income elasticity of demand equation
% change in quantity demanded / % change in income
what type of good is it if the income elasticity of demand is greater than 0
normal good
what type of good is it if the income elasticity of demand is greater than 1
luxury good
what type of good is it if the income elasticity of demand is less than 0
inferior good
