Exam #1 Flashcards
Absolute advantage
The ability to produce a good using fewer inputs than another producer
Comparative advantage
The ability to produce a good at a lower opportunity cost than another producer
Scarcity
The limited nature of society’s resources
Economics
The study of how society manages its scarce resources
Efficiency
The property of society getting the most it can from its scarce resources
Opportunity cost
Whatever must be given up to obtain some item
Rational people
People who systematically and purposefully do the best they can do to achieve their objectives
Marginal change
A small increment adjustment to a plan of action
Incentive
Something that induces a person to act
Property rights
The ability of an individual to own and exercise control over scarce resources
Externality
The impact of one persons actions on the well-being of a bystander
Market power
The ability of a single economic actor to have a substantial influence on market prices
Productivity
The quantity of goods and services produced from each unit of labor input
Inflation
An increase in the overall level of prices in the economy
Production possibilities frontier
A graph that shows combination of output that the economy can possibly produce given the available factors
Microeconomics
The study of how households and firms make decisions
Macroeconomics
Inflation, unemployment, economic growth
Positive statements
Claims that attempt to describe the world as it is
Normative statements
Claims that attempt to prescribe how the world should be
Imports
Goods produced abroad and sold domestically
Exports
Good produced domestically and sold abroad
Market
A group of buyers and sellers of a particular good or service
Law of demand
The quantity demanded of a good falls when the price of the good rises
Demand curve
A graph of the relationship between the price of a good and the quantity demand
Normal good
An increase in income leads to an increase in demand
Inferior good
An increase in income leads to a decrease in demand
Substitutes
Increase in one good = increase in demand for another
Quantity supplied
The amount of a good that sellers are willing and able to sell
Law of supply
The quantity supplied of a good rises when the price of the good rises
Supply curve
A graph of the relationship between the price of a good and the quantity supplied
Equilibrium
market price has reached the level at which quantity supplied equals quantity demanded
Equilibrium price
The price that balances quantity supplied and quantity demanded
Equilibrium quantity
The quantity supplied and the quantity demanded at the equilibrium price
Surplus
A situation in which quantity supplied is greater then quantity demanded
Shortage
A situation in which quantity demanded is greater then quantity supplied
Law of supply and demand
The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
Elasticity
A measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants
Total revenue
The amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold
Tax incidence
The manner in which the burden of a tax is shared among participants in a market
Price ceiling
A legal maximum on the price at which a good can be sold
Price floor
A legal minimum on the price at which a good can be sold
