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Econ 102 > Midterm 1 > Flashcards

Midterm 1 Flashcards

1
Q

Economics

A

The study of how society manages its scarce resources

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2
Q

First principle

A

People face trade offs

Efficiency vs equality

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3
Q

Efficiency

A

The property of society getting the most it can from scarce resources

Ex: size of pie

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4
Q

Equality

A

Distributing economic prosperity uniformly among members of society

Ex: how the pie is divided up into individual slices

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5
Q

Opportunity cost

A

Whatever must be given up to obtain some item

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6
Q

Rational people

A

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

  • rational people think at the margin
  • they make decisions by comparing benefits and costs
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7
Q

Incentive

A

Something that induces a person to act

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8
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
- guided by an invisible hand

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9
Q

Property rights

A

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

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10
Q

Market failure

A

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

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11
Q

Externality

A

The impact of ones actions on the well being of a bystander

- one cause of market failure

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12
Q

Market power

A

The ability of a single economic actor to have substantial influence on market prices

  • another cause of market failure
  • one person has control over something everyone needs
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13
Q

Productivity

A

The quantity of goods and services produced from each unit of labor input

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14
Q

A countries standard of living depends on what

A

It’s ability to produce goods and services

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15
Q

Inflation

A

An increase in the overall level of prices in the economy

- when the government prints too much money

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16
Q

Society faces short run trade off between what

A

Inflation and unemployment

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17
Q

Business cycle

A

Fluctuations in economic activity such as employment and production

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18
Q

The role of assumptions

A

Assumptions can simplify the complex world and make it easier to understand

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19
Q

Circular flow diagram

A

A visual model of the economy that shows how dollars flow through markets among households and firms

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20
Q

The two markets households and firms interact in

A

Markets for goods and services and market for factors of production

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21
Q

The production possibilities frontier

A

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

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22
Q

Microeconomics

A

The study of how households and firms make decisions and how they interact in markets

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23
Q

Macroeconomics

A

The study of economy wide phenomena, including inflation, unemployment, and economic growth

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24
Q

Positive statements

A

Claims that attempt to describe the world as it is

- descriptive

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25
Normative statements
Claims that attempt to prescribe how the world should be | - prescriptive
26
Absolute advantage
The ability to produce a good using fewer inputs than another producer
27
Comparative advantage
The ability to produce a good at a lower opportunity cost than another producer - impossible to have CA in both goods - the driving force of specialization
28
Why does trade benefit everyone
Bc it allows people to specialize in activities in high they have a comparative advantage
29
What is necessary for both parties to gain from trade
The price at which they trade must lie between the two opportunity costs
30
Imports
Goods produced abroad and sold domestically
31
Exports
Goods produced domestically and sold abroad
32
Market
A group of buyers and sellers of a particular good or service - buyers determine demand - sellers determine supply
33
Competitive market
A market in which there are so many buyers and so many Sellers that each has a negligible impact on the market price
34
To be perfectly competitive:
The goods offered for sale are all exactly the same The buyers and sellers are so numerous that no single buyer or seller has any influence over the market price
35
Price takers
Buyers and sellers in perfectly competitive markets bc they must accept the price the market determines
36
Markets that aren't perfectly competitive are
Monopolies
37
Quantity demanded
The amount of the good that buyers are willing and able to purchase
38
Law of demand
Other things equal, when the price of a good rises, the quantity demanded of the good falls and when the price falls the quantity demanded rises
39
Demand schedule
Shows the relationship between the price of a good and the quantity demanded, holding constant everything else that influences how much of the good consumers want to buy.
40
Demand curve
A graph of the relationship between the price of a good and the quantity demanded
41
Market demand at each price is what
The sum of the two individual prices
42
Shifts in the demand curve
``` Income Price of related goods Tastes change Expectations Number of buyers ```
43
Normal good
Demand falls when income falls and vice versa
44
Inferior goods
Demand rises when income falls and vice versa | Ex: riding the bus
45
Substitutes
Two goods for which an increase in the price of one leads to an increase in demand for the other Ex: ice cream and fro yo, hamburgers and hot dogs.
46
Complements
Two goods for which an increase in the price leads or a decrease in demand for the other Ex: hot fudge and ice cream, cars and gas, PB and
47
shift
Change in something not measured on either axis
48
Movement
Change in something on one of the axis's.
49
Quantity supplied
The amount of a good that sellers are willing and able to sell
50
Law of supply
Other things being equal, the quantity supplied of a good rises when the price of a good rises.
51
Supply schedule
A table that shows the relationship between the price of a good and the quantity supplied
52
Supply curve
A graph of the relationship between the price of a good and quantity supplied
53
Market supply is what
The sum of the supplies of all sellers
54
shifts in the supply curve
Input prices Technology Expectations Number of sellers
55
Equilibrium
A situation in which the market price has reached the level at which quantity supplied equals quantity demanded
56
Surplus
The quantity supplied is greater than quantity demanded
57
Shortage
Quantity demanded is greater than quantity supplied | - excess demand
58
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
59
3 steps to analyze change in equilibrium
1. Decide whether the event shifts the supply or demand curve or both 2. Decide in which direction the curve shifts 3. Use the supply and demand diagram to see how the shift changes the equilibrium price and quantity.
60
Supply refers to
The position of the supply curve | Shift
61
Quantity supplied refers to
The amount suppliers wish to sell | Movement
62
Scarcity
Society has limited resources and therefore cannot produce all goods and services people wish to have

Econ 102 (3 decks)

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