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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
Q

Normative statements

A

Claims that attempt to prescribe how the world should be

- prescriptive

26
Q

Absolute advantage

A

The ability to produce a good using fewer inputs than another producer

27
Q

Comparative advantage

A

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
Q

Why does trade benefit everyone

A

Bc it allows people to specialize in activities in high they have a comparative advantage

29
Q

What is necessary for both parties to gain from trade

A

The price at which they trade must lie between the two opportunity costs

30
Q

Imports

A

Goods produced abroad and sold domestically

31
Q

Exports

A

Goods produced domestically and sold abroad

32
Q

Market

A

A group of buyers and sellers of a particular good or service

  • buyers determine demand
  • sellers determine supply
33
Q

Competitive market

A

A market in which there are so many buyers and so many Sellers that each has a negligible impact on the market price

34
Q

To be perfectly competitive:

A

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
Q

Price takers

A

Buyers and sellers in perfectly competitive markets bc they must accept the price the market determines

36
Q

Markets that aren’t perfectly competitive are

A

Monopolies

37
Q

Quantity demanded

A

The amount of the good that buyers are willing and able to purchase

38
Q

Law of demand

A

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
Q

Demand schedule

A

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
Q

Demand curve

A

A graph of the relationship between the price of a good and the quantity demanded

41
Q

Market demand at each price is what

A

The sum of the two individual prices

42
Q

Shifts in the demand curve

A 
Income 
Price of related goods
Tastes change
Expectations
Number of buyers
43
Q

Normal good

A

Demand falls when income falls and vice versa

44
Q

Inferior goods

A

Demand rises when income falls and vice versa

Ex: riding the bus

45
Q

Substitutes

A

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
Q

Complements

A

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
Q

shift

A

Change in something not measured on either axis

48
Q

Movement

A

Change in something on one of the axis’s.

49
Q

Quantity supplied

A

The amount of a good that sellers are willing and able to sell

50
Q

Law of supply

A

Other things being equal, the quantity supplied of a good rises when the price of a good rises.

51
Q

Supply schedule

A

A table that shows the relationship between the price of a good and the quantity supplied

52
Q

Supply curve

A

A graph of the relationship between the price of a good and quantity supplied

53
Q

Market supply is what

A

The sum of the supplies of all sellers

54
Q

shifts in the supply curve

A

Input prices
Technology
Expectations
Number of sellers

55
Q

Equilibrium

A

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded

56
Q

Surplus

A

The quantity supplied is greater than quantity demanded

57
Q

Shortage

A

Quantity demanded is greater than quantity supplied

- excess demand

58
Q

Law of supply and demand

A

The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

59
Q

3 steps to analyze change in equilibrium

A
  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
Q

Supply refers to

A

The position of the supply curve

Shift

61
Q

Quantity supplied refers to

A

The amount suppliers wish to sell

Movement

62
Q

Scarcity

A

Society has limited resources and therefore cannot produce all goods and services people wish to have

Econ 102 (3 decks)

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