Exam 1 Flashcards
What is Economics?
the study of decision making in the face of scarcity/ how people use resources and respond to incentive
What is Macroeconomics?
deals with the performance, structure, behavior of the economy as a whole
What is the supply and demand model?
a model that shows the quantity of each good produced and the price at which it’s sold
What are the assumptions of the supply and demand model?
- many buyers and sellers
- All firms selling identical products
- No barriers to entry or leaving
What determines consumer demand for a product?
- price of product
- income
- price of related goods
- population and demographics
- Preferences
- Natural Disasters
Law of Demand
the higher the price the less demanded. the lower the price the more demanded
Substitution Effect
consumers replace more expensive goods with less expensive alternatives
Income Effect
the change in quantity demanded when a consumers income changes
Normal Goods
Goods you buy more of as income increases
Inferior Goods
Goods you buy less of as your income increases
Factors that effect quantity supplied
- price of product
- price of inputs
- Changes in Technology
- Number of firms
- Expected future prices
- natural disasters
What is a supply schedule?
shows relationship between price and product supplied
What is the Law of Supply?
As price increases, supply increases
What are some factors that shift the supply curve to the left?
- Price of inputs
- Technological change
What is market equilibrium?
A situation where quantity supplied equals quantity demanded
What is a price ceiling?
Legal maximum price
What is a price floor?
Legal minimum price
What is consumer surplus?
the difference between highest price consumers are willing to pay and the price a consumer actually pays
What is producer surplus?
the difference between the lowest price a firm would accept and the price you actually receive
What is marginal cost?
the additional cost to a firm by producing one more good
How can you tell if a market is efficient?
- if all trades take place where the marginal benefit equals marginal cost and no other trades take place
- if it maximizes the sum of consumer and producer surplus
What is GDP?
a measure of a countries total production
What is a business cycle?
Alternating periods of economic expansion and reduction
What is an inflation rate?
the percentage increase in price level from one year to the next
What is an intermediate good?
a good that is used to make something else (ex. flour, sugar)
What are government purchases?
Spending by the federal, state, or local government on goods and services
What is the underground economy?
buying and selling goods and services concealed from the government
What are the shortcomings of measuring GDP?
- Doesn’t measure the value of leisure
- Pollution
- Crime and other social problems
- Distribution of income
