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Econ200 > Exam 1 > Flashcards

Exam 1 Flashcards

0
Q

Scarcity

A

Society has limited resources and therefore cannot produce all the goods and services people wish to have

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1
Q

Economy

A

Comes from Greek word oikonomos, which means “one who manages a household”

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2
Q

Economics

A

The study of how society manages it’s scarce resources

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3
Q

Economists study…

A

How people make decisions: how much they work, what they buy, how much they save, and how they invest.
Analyze forces and trends that affect the economy as a whole, including the growth in average income, the fraction of the population that cannot find work, and the rate at which prices are rising.

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4
Q

Principle 1

A

People face trade-offs

To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another

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5
Q

Efficiency

A

Society is getting the maximum benefits from it’s scarce resources

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6
Q

Equality

A

The property if distributing economic prosperity uniformly among the members of society

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7
Q

Principle 2

A

The cost of something is what you give up to get it.

Not usually just money can also be time or other goods

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8
Q

Opportunity cost

A

What you give up to get that item

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9
Q

Principle 3

A

Rational people think at the margin

Rational people know that decisions in life are rarely black and white but usually involve shades of gray

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10
Q

Rational people

A

People who systematically and purposefully do the best they can to achieve their objects

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11
Q

Marginal cost

A

A small incremental adjustment to an existing plan of action

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12
Q

Marginal adjustments

A

Adjustments around the edges of what you are doing

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13
Q

Principle 4

A

People respond to incentives

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14
Q

Incentive

A

Something that induces a person to act, such as the prospect of punishment or a reward

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15
Q

Principle 5

A

trade can make everyone better off

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16
Q

Principle 6

A

Markets are usually a good way to organize economic activities

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17
Q

Centrally planned economies

A

Only the government could analyze economic activity in a way that promoted economic well-being for the country as a whole

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18
Q

Market economy

A

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

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19
Q

Adam Smith

A

Book “An Inquiry into the Nature and causes of the wealth of nations”
in 1776: made the most famous observation in all of economics: Households and firms interacting in markets act as if they are guided by an “invisible hand” that leads them to desirable market outcomes

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20
Q

Principle 7

A

Governments can sometimes improve market outcomes

we need the government to enforce the rules and maintain the institutions that are key to a market economy

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21
Q

Property rights

A

the ability of an individual to own and exercise control over scarce resources

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22
Q

Market failure

A

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

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23
Q

Externality

A

the impacts of one person’s actions on the well-being of a bystander

ex. pollution

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24
market power
the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices ex. if everyone in town needs water but there is only one well, the owner of the well is not subject to the rigorous competition with which the invisible hand normally keeps self-interest in check
25
Principle 8
A country's standard of living depends on its ability to produce goods and services
26
Productivity
the quantity of goods and services produced from each unit of labor input
27
Principle 9
prices rise when the government prints too much money
28
Inflation
an increase in the overall level of prices in the economy
29
Principle 10
the society faces a short-run trade-off between inflation and unemployment
30
short-run effects of monetary injections
increasing the amount of money in the economy stimulates the overall level of spending and thus the demand for goods and services higher demand may over the time cause firms to rise their prices, but in the meantime, it also encourages them to hire more workers and produce a larger quantity of goods and services more hiring means lower unemployment
31
business cycle
fluctuations in Economic activity, such as employment and production
32
Circular-flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms REFER TO DIAGRAM pg. 25
33
Production possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
34
Microeconomics
the study of how households and firms make decisions and how they interact in markets
35
Macroeconomics
the study of economywide phenomena, including inflation, unemployment, and economic growth
36
Positive statements
claims that attempt to describe the world as it is
37
Normative statements
claims that attempt to prescribe how the world should be
38
absolute advantage
the ability to produce a good using fewer inputs than another producer
39
Opportunity cost
whatever must be given up to obtain some item
40
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
41
imports
goods produced abroad and sold domestically
42
exports
goods produced domestically and sold abroad
43
Market
a group of buyers and sellers of a particular good or service
44
Competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact of the market price
45
quantity demanded
the amount of a good that buyers are willing and able to purchase
46
law of demand
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
47
Demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
48
demand curve
a graph of the relationship between the price of a good and the quantity demanded
49
normal good
a good for which, other things equal, an increase in income leads to an increase in demand
50
Inferior good
a good which, other things equal, an increase in income leads to a decrease in demand
51
Substitutes
Two goods for which an increase in the price of one leads to an increase in the demand for the other
52
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
53
Quantity supplied
the amount of a good that sellers are willing and able to sell
54
Law of supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
55
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
56
supply curve
a graph of the relationship between the price of a good and the quantity supplied
57
Equilibrium
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
58
Equilibrium price
the price that balances quantity supplied and quantity demanded
59
equilibrium quantity
the quantity suppled and the quantity demanded at the equilibrium price
60
surplus
a situation in which quantity supplied is greater than quantity demanded
61
shortage
a situation in which quantity demanded is greater than quantity supplied
62
law of supply and demand
the claim that the price of any good adjust to bring the quantity suppled and the quantity demanded for that good into balance

Econ200 (2 decks)

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