Introduction to Applied Economics Flashcards
The 3 E’s of Economics
Efficiency, effectiveness, equity
Efficiency
It is the productivity and proper allocation of economic resources and the relationship between scarce factor input and output of goods and services.
Effectiveness
It is the attainment of goals and objectives.
Equity
It refers to justice and fairness.
Social Science
Is the study or discipline that aims to explain human behavior.
Why is economics a social science?
Economics is a social science because it studies human behavior and how people make decisions to satisfy their unlimited wants by allocating limited resources.
Two branches of economics.
Macroeconomics and Microeconomics
Macroeconomics
It is the study of the economic behavior of the economy as a whole, especially the national economy. Also known as the analysis of employment and income.
Topics discussed in macroeconomics
Gross national product, employment level, national income, gross domestic product, general price level, and economic growth and development.
Microeconomics
It is the study of economic behavior in particular markets, such as market for computers or unskilled labor.
Topics discussed in microeconomics
Principles and elasticity of the demand and supply, individual decision making, and firms cost and outputs.
Basic decision problems
C-P-D-G
Consumption
Production
Distribution
Growth over time
Tools of Economics
L-M-S
Logic
Mathematics
Statistics
Logic
Is a science that deals with sound thinking and reasoning.
Mathematics
Is a science that deals with numbers and operations.
Statistics
Is a branch of mathematics that engages with the analysis and interpretation of numerical data.
Economic/Production Resources
Are the resources or inputs used to produce the goods and services that people want.
Land
Is categorized as fixed resources
Labor
Is the exerted effort of individuals when producing goods and services
Human Capital
Comprises all able bodied people capable of working in the nation’s economy and offering other individuals or businesses different services
Capital
Is the man made goods or resources used when producing other goods and services
Monetary Resources
Mov a nation’s economy as people purchase and sell resources to people and businesses
Savings
Is part of the person or economy’s income not spent on consumption
Entrepreneurship
Is an economic activity that might earn the entrepreneur a profit or incur a loss
Foreign Exchange
Is the dollar and the dollar reserves that the company has
Scarcity
Is a condition facing all societies because insufficient productive resources satisfy peoples unlimited wants.
Opportunity Cost
Is the value of the best-foregone alternative or what is given up when one chooses.
There is no such thing as a free lunch (TINSTAAFL)
Explains the notion of opportunity costs.
Positive Economics
Is an economic analysis that considers economic conditions ‘as they are’ or considers economics ‘as it is’.
Normative Economics
Is an economic analysis that judges economic conditions ‘as these should be’.
Ceteris Paribus
A greek term meaning all other things health constant or all else equal, is an assumption used in analyzing the relationship between two variables as the other factors are unchanged.
Applied Science
Deals with applying scientific knowledge to problems to develop practical solutions
Applied Economics
Is the study of economics relative to real life situations by observing how theories work in practice.
Economic Theory
Simplifies economic reality used to make predictions about the real world
Econometrics
Is the application of statistical and mathematical theories to economics for testing hypothesis and future forecasting trends
Economic System
Is the set of mechanisms and institutions that resolve questions of what how and for whom. It is how society responds to basic economic questions
Demand
Is a relationship showing the quantities of a good that consumers are willing and able to buy for period at various prices other things held constant.
Demand Schedule
Is a table showing the relationship between prices and specific quantities demanded at each
Demand Curve
Is a curve or line showing the quantities of a particular good demand that various prices during a given period other things constant
Law of Demand
States that the quantity of demanded products per period relates inversely to their price or other things constant
Substitution Effects
Is felt when a product’s price changes demand due to people buying and consuming other substitute goods
Income Effect
Is felt when a product’s price changes a consumers real income or purchasing power
Income Effect
Is felt when a product’s price changes a consumers real income or purchasing power
Marginal utility
Is the change in total economic utility
Economic utility
Is the amount of satisfaction a consumer receives from the consumption of a product or service
Law of Diminishing Marginal Utility
States that the more of the product or service an individual consumes per period other things constant the smaller the marginal utility of each additional unit consumed
Demand Function
Shows the relationship between the demand for commodity and the factors
The current price of product a is 7 pesos the intercept of the demand curve is 4 the slope is 0.25 compute how much of product a will be demanded by consumer z
Qd = a-bP
=4 - 0.25(7)
=4-1.75
= 2.25 units of Product A
Taste or Preference
Is consumers personal likes or dislikes for certain goods and services
Population Change
An increase in the demand for some good or services particularly for basic goods results from increasing population
Substitute Goods
Are interchange with another good usually offered at the lower price does making them are attractive to customers
Complementary Goods
Compliment each other and one good cannot exist with other good
Supply
Is a relationship showing the quantities of goods producers traveling and able to sell at various prices to given period and other things are held
constant
Supply Schedule
Is a table listing the various prices of a product and specific quantity supplied at each of these prices at the given time
Supply Curve
Is a curve or line showing the quantities of a particular good supplied at various prices during a given period and other things health constant
Market Supply Curve
Shows the total quantities of all producers at various prices
Market Demand Curve
Is the sum of the individual demand curves for all consumers in the market
Quantity Demanded
Is the amount demanded at the particular price
Quantity Supplied
Is the amount offered for sale at a specific price is shown by the point in the given supply curve
Law of Supply
States that the quantity of products supplied during a period is usually directly related to its price other things constant
Supply Function
Is a mathematical notation that links the dependent variable quantity supplied with various independent variables to determine quantity supplied
Optimization in the Use of Factors of Production
An increase in supply will happen when there is an optimization of the utilization of product factors
Technological Change
There is an increase in the supply brought by the introduction of cost-reducing innovations.
Market Equilibrium
Is when the quantity consumers are willing and able to buy equals the quantity producers are willing and able to sell.
Equilibrium Price
Equates quantity demanded with quantity supplied.
Equillibrium market price
Is the price agreed upon by the seller to offer his good or service for sale and for the buyer to pay for it.
Disequilibrium
Is a mismatch between the quantity demanded and quantity supplied as the market seeks equilibrium.
Consumer Surplus
Is the difference between what consumers are willing and able to pay for a given quantity of a good and what they pay.
Price Controls
Are the government specification of minimum or maximum prices for certain goods and services
Price floor
Is a legal minimum price below which a product cannot be sold
Price Ceiling
Is a legal maximum selling price above which a product cannot be sold
Law of Supply and Demand
States that price decreases when supply is greater than demand and increases when demand is greater than supply
Elasticity
Measures how much buyers and sellers respond to changes in market conditions
Coefficient of Elasticity
Is the number of paint when the percentage change in demand is divided by the percentage change in determinant
Demand Elasticity
Is a measure of the degree of responsiveness of quantity demanded of a product to the given change in one of the independent variables that affect demand for the product
Price Elasticity of Demand (Ed)
Is the responsiveness of consumers demand to the change and the price of goods sold.
Ed=percentage change in quantity demanded/percentage change in price
Arc Elasticity
Is computed by choosing two points on a demand curve and comparing the percentage changes in the quantity and the price and those two points
Inelastic
The demand for a product is inelastic when the change in quantity demanded is less than the price change
Elastic
The demand for a product is elastic when the change in quantity demanded is greater than the price change
Unitary elastic
The demand for a product is unitary elastic when the change in quantity demanded is equal to the price change
Income elasticity of demand
Is the responsiveness of consumers demand to the change in their income.
Ei= percentage change in quantity demanded /percentage change in income
Normal good
An increase in income brings a rise in demand for the good
Inferior Good
An increase in incomings of all in the demand for the good
Cross price Elasticity of demand
Is the responsiveness of demand for a good concerning the changes in the price of related goods.
Exy= percentage change in quantity of X demanded/percentage change in the price of Y
Substitute good
Two goods that have a positive relationship between the quantity demanded of one good and the price of the other are considered substitutes
Complementary good
Too goods that have a negative relationship between the quantity demanded of one good and the price of the other are considered compliments
Perfectly price inelastic
When the price changes do not affect the quantity demanded
Perfectly price elastic
Given that any quantity will be demanded only at a prevailing price
Supply Elasticity
Measures the degree of supplies responsiveness to a given price change.
Es= percentage change in quantity supplied/percentage change in price
Supply inelastic
The quantity supplied is price inelastic if a price change generates a less than proportionate change in the quantity supplied
Supply elastic
The quantity supplied is price elastic if a percentage price change leads to a more than proportionate change in the quantity supplied
Supply unitary elastic
The quantity supplied is unitary elastic if the change in quantity supplied is equal to the price change
Market structures
Is a classification system for the key traits of the market including the number of firms the similarity of the products they sell and the ease of entry into an exit from the market structure
Four major types of market structures
Perfect Competition
Monopoly
Monopolistic Competition
Oligopoly
Bilateral monopoly
A market situation in which there is one seller and one buyer
Bilateral Oligopoly
Market condition with significant degrees of seller concentration and buyer concentration
Duopsony
A market situation with only two buyers and many sellers
Duopoly
A subset of oligopoly there are only two suppliers in the market
Monopsony
A form of buyer concentration it is a market situation with a single buyer dealing with many small suppliers
