M1 - Definitions Flashcards
Economics
Social science that sties the production, distribution and consumption of goods and services
Microeconomics
Deals with the behavior of decision makers and the operation of specific product, labor and capital markets (small scale)
Resource
Anything that can be used to produce something else or be directly consumed
Cost-benefit rule
Take action if and only if its benefit is at least as large of its cost
Opportunity cost
The value of the opportunities forgone by taking a specific action
Explicit cost
Involve an outlay of money
Implicit cost
Do not involve an outlay of money but do involve a forgone benefit
True cost
The value of what you must give up to obtain a good (incl. opp costs)
Marginal decision
A choice about a little more or less of something. Incremental benefit of cost of one more unit of the activity
Trade-off
Comparison of costs and benefits
Incentive
Opportunities to make oneself better off. Something that motivates a person to take or not take an action
Command economy
Decisions about the production, delivery and selling of goods is made by the government
Invisible Hand
The idea that the market economy manages itself without anyone’s interference
Market failure
When the individual pursuit their own interests instead of society’s
Recessions
Downturns in the economy
Economic growth
The increasing ability of the economy to produce goods and services, leading to higher living standards
Economic interactions
How one’s choices affect others
Economic models
Simplifications of reality that capture the essence of the represented phenomenon
Other things equal Assumption
Assuming that other relevant factors within a model stay the same
Production Possibilities Frontier
A graphical model that shows that combinations of outputs an economy can produce at a particular point in time given its productive resources and technologies
Productive potential
The maximum amount of goods and services that an economy can produce
Gains from trade
The mutual gains that individuals can achieve by specializing in doing different things and then trading
Absolute advantage
When one producer uses fewer productive resources to produce a good or service than some other person
Comparative advantage
When one producer can produce that good at a lower opportunity cost than some other person
Efficiency in production
No missed opportunities in production
Efficiency in allocation
Economies being able to allocate their resources to ensure the wellness of their consumers
Per capita income
The total income of the country divided by the size of the population
Time-series graph
Use to see what happens with economic variables over time. Dates in x axis and values of a variable on y axis
Market
A group of producers and consumers who exchange goods and services for payment
Competitive market
A market that has multiple independent buyers/sellers, cannot be influenced b a single person and the traded goods are standardized
Standardized goods
Every unit being traded is the same
(ex, quality is not a concern)
Quantity demanded
The amount consumers are willing and able to spend on a purchase during a specific time
Law of Demand
Higher prices for a good, other things equal, lead to people demanding less of that good
Demand schedule / curve
Graphical representations of how much of a good or service consumers will want to buy at different prices
Normal goods
When income raises, so does demand for these goods
Inferior goods
When income raises, demand for these goods drops
Quantity supplied
The quantity that producers of any good or service are willing and able to produce (and offer for sale) during a specific period of time
Supply schedule / curve
A graphical representation showing how much of a good or service producers will supply at different prices
Market Equilibrum
A situation in which no individual would be better off by taking a different action
(price has moved to a level where quantity of demand equals quantity of demand)
Equilibrium Price / market-clearing price
The price that matches the quantity supplied and demanded
Equilibrium quantity
The quantity bought and sold at equilibrium price
Surplus
Excess
Shortage
Lack of
Simultaneous Shifts
when both the eq price and eq quantity move at the same time, given a multitude of factors
Qualitative forecast
Involves predicting the direction of a change in an economic variable
Quantitative forecast
Involves predicting the direction AND MAGNITUDE of a change in an economic variable
Positive Economics
Answer questions about how the world works with definitive right/wrong answers.
Descriptive
Normative economics
Analysis about how the world SHOULD work
Prescription
Choke price
The lowest price at which the quantity demanded falls to 0
Input
Any good or service that is used to produce another good or service.
Subsidized
supported financially
having part of the cost of production paid in order to keep the selling price low.
