FINAL Flashcards
economics
study of human behavior that emphases rational decision making
scarcity
implies choice
opportunity costs and trade offs mean nothing is free
you must give something up when you make a choice
ex: going to class vs sleeping in
rational self interest
rational means people tend to choose the correct means to achieve their goals
rational decision
makes respond to incentives and make decisions at the margin
ex: everytime you come to class, get $20 vs the class smelling bad you wouldn’t come
ceteris paribus
other things the same or other things held constant
resources are used to
produce goods and service
ex: machines, skills NOT money
postive econ
what is
normative econ
ought or should be
production possibilities frontier
a graph that shows all the different combinations of output of two goods that can be produced using available resources and technology
key to mass production is
specialization
supply curve
a graphic representation of the correlation between the cost of a good or service and the quantity supplied for a given period
demand curve
a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time
quantity demanded
the total amount of a good or service that consumers demand over a given interval of time
normal goods
a good that experiences an increase in its demand due to a rise in consumers’ income
inferior goods
one whose demand drops when people’s incomes rise
Change in demand versus change in quantity demanded
A change in quantity demanded refers to a movement along a fixed demand curve – that’s caused by a change in price. A change in demand refers to a shift in the demand curve – that’s caused by one of the shifters: income, preferences, changes in the price of related goods and so on.
Change in supply versus change in quantity supplied
A change in quantity supplied is a movement along the supply curve in response to a change in price. A change in supply is a shift of the entire supply curve in response to something besides price
things that can shift demand
- normal goods
- inferior goods
- changes in prices of substitutes and compliments
- Weather, climate, population, taxes, regulation, subsidies
normal good
- a good that experiences an increase in its demand due to a rise in consumers’ income.
- Normal goods have a positive correlation between income and demand.
- Examples of normal goods include food staples, clothing, and household appliances.
inferior goods
- one whose demand drops when people’s incomes rise
- When incomes are low or the economy contracts, inferior goods become a more affordable substitute for a more expensive good.
substitutes
- This means if the price of one product increases, the demand for the other increases.
- For example, coffee can be said to be a substitute for tea, and solar energy is a substitute for electricity. If the price of coffee goes up, the demand for tea goes up, too, and vice versa.
compliments
- a product or service that adds value to another
- they are two goods that the consumer uses together
- For example, cereal and milk, or a DVD and a DVD player.
equilibrium
Economic equilibrium is a condition or state in which economic forces are balanced.