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ECO 1304 > Midterm > Flashcards

Midterm Flashcards

1
Q

Scarcity

A

The limited nature of society’s

resources.

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2
Q

Principle 1:

A

people face tradeoffs

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3
Q

Principle 2:

A

The cost of something is what you give up to get it

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4
Q

Principle 3:

A

Rational people think at the margin

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5
Q

Principle 4:

A

People repsong to incentives

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6
Q

Principle 5:

A

Trade can make everbody better off

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7
Q

Principle 6:

A

Markets are usually a good way to organize economic activity

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8
Q

Principle 7:

A

Governments can sometimes improve market outcomes

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9
Q

Principle 8:

A

A country’s standard of living depends on its ability to produce goods and services

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10
Q

Principle 9:

A

Prices rise when the government prints too much money

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11
Q

Principle 10:

A

Society faces a short-run tradeoff between inflation and unemployment

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12
Q

Oppurtunity cost:

A

Whatever must be given up to obtain some item.

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13
Q

Rational people:

A

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

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14
Q

Marginal changes:

A

Small incremental adjustments to a plan of action.

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15
Q

Incentive:

A

Something that induces a person to act.

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16
Q

Property rights:

A

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

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17
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

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18
Q

We need governments for two reasons:

A

1) To enforce property rights
2) Because the invisible hand is powerful, but it is
not omnipotent

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19
Q

Market failure:

A

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

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20
Q

Externality:

A

The impact of one person’s actions on the well-being of a bystander.

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21
Q

Productivity:

A

The quantity of goods and services produced from each hour of a worker’s time.

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22
Q

Productivity:

A

The quantity of goods and services produced from each hour of a worker’s time.

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23
Q

Inflation:

A

An increase in the overall level of prices in the

economy.

24
Q

Buisness cycle:

A

The irregular and largely unpredictable fluctuations in economic activity, as measured by the production of goods and services or the number of people employed.

25
Q

Normative statements:

A

Claims that attempt to prescribe how the world should be.

26
Q

Positive statements:

A

Claims that attempt to describe the world as it is.

27
Q

Absolute advantage:

A

The comparison among producers of a good according to their productivity.

28
Q

Comparative advantage:

A

The comparison among producers of a good according to their opportunity cost.

29
Q

Competitive Market

A

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

30
Q

Quantity demanded

A

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

31
Q

Quantity demanded

A

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

32
Q

Law of demand

A

The claim that, other things equal, the quantity demanded of a good falls when the price of the good rises.

33
Q

Demand schedule

A

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

34
Q

Demand curve

A

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

35
Q

Market demand

A

The sum of all the individual demands for a particular good or service.

36
Q

Normal good

A

A good for which, other things equal, an increase in income leads to an increase in demand.

37
Q

Inferior good:

A

A good for which, other things equal, an increase in income leads to a decrease in demand.

38
Q

Factors that shift the demand curve

A
  • Prices of related goods
  • Tastes
  • Expectations
  • Number of buyers
39
Q

Substitutes

A

Two goods for which an increase in the price of one leads to an increase in the demand for the other.

40
Q

Complements

A

Two goods for which an increase in the price of one leads to a decrease in the demand for the other.

41
Q

Quantity supplied:

A

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

42
Q

Law of supply

A

The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.

43
Q

Factors that shift the supply curve

A
  • Input prices
  • Technology
  • Expectations
  • Number of sellers
44
Q

Equilibrium

A

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

45
Q

Equilibrium price

A

The price that balances quantity supplied and quantity demanded

46
Q

Equilibrium quantity

A

The quantity supplied and the quantity demanded at the equilibrium price

47
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.

48
Q

Willingness to pay

A

The maximum amount that a buyer will pay for a good.

49
Q

Consumer surplus

A

A buyer’s willingness to pay minus the amount the buyer actually pays.

50
Q

CS

A
  • The area below the demand curve and above the price measures the consumer surplus in a market.
  • The difference between this willingness to pay and
    the market price is each buyer’s consumer surplus.
  • Thus, the total area below the demand curve and
    above the price is the sum of the consumer surplus of
    all buyers in the market for a good or service.
51
Q

Producer surplus

A

The amount a seller is paid for a good minus the seller’s cost.

52
Q

Measuring producer surplus

A

-The area above the supply curve and below the
price measures the producer surplus in a market.

  • The logic is straightforward: The height of the supply
    curve measures sellers’ costs, and the difference
    between the price and the cost of production is
    each seller’s producer surplus.
  • Thus, the total area is the sum of the producer surplus
    of all sellers.
53
Q

Total surplus

A

Value to buyers – Amount paid by buyers +

Amount received by sellers – Cost to sellers

54
Q

Efficiency

A

The property of a resource allocation of maximizing the total surplus received by all members of society.

55
Q

Equity

A

The fairness of the distribution of well-being among the members of society.

ECO 1304 (2 decks)

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