midterm Flashcards
scarcity
the problem that arises from our limited money, time, and energy
economics
how individuals, businesses, and governments make the best possible choices to get what they want, and how those choices interact in markets
opportunity cost
the cost of the best alternative given up
incentives
rewards and penalties for choices
production possibilities frontier
maximum cominations of products or services that can be produced with existing inputs
absolute advantage
the ability to produce a product or service at a lower absolute cost than another producer
comparative advantage
the ability to produce a product or service at a lower opportunity cost than another producer
model
a simplified representation of the real world, focusing attention on what’s important for understanding
inputs
the productive resources- labour, natural resources, capital equipment, and entrepreneurial ability- used to produce products and services
positive statements
about what is: can be evaluated as true or false by checking the facts
normative statements
about what you believe should be: involve value judgements
microeconomics
analyzes choices that individuals in households, individual businesses, and governments make, and how those choices interact in markets
macroeconomics
analyzes performance of the whole Canadian economy an global economy, the combined outcomes of all individual microeconomic choices
marginal benefits
additional benefits from the next choice
marginal opportunity costs
additional opportunity costs from the next choice
implicit costs
opportunity costs of investing your own money or time
negative (or positive) externalities
costs (or benefits) that affect others external to a choice or a trade
demand
consermers’ willingness and ability to par for a particular product or service
marginal benefit
the additional benefit from a choice, changing with circumstances
quantity demanded
amount you actually plan to buy at a given price
market demand
sum of demands of all individuals willing and able to buy a particular product or service
law of demand
if the price of a product or service rises, quantity demanded decreases, other things remaining the same
demand curve
shows the relationship between price and quantity demanded, other things remaining the same
increase in demand
increase in consumers’ willingness and ability to pay
decrease in demand
decrease in consumers’ willingness and ability to pay
substitutes
products or services used inplace of each other to satisfy the same want
complements
products or services used together to satisfy the same want
normal goods
products or services you buy more of when your income increases
inferior goods
products or serviecs you buy less of when your income increases
marginal cost
additional opportunity cost of increasing quantity supplied, changing with circumstances
sunk costs
past expenses that cannot be recovered
supply
businesses’ willingness to produce a particular product or service because price covers all opportunity costs
quantity supplied
the quantity you actually plan to supply at a given price
marginal opportunity cost
complete term for any cost relevant to a smart decision
market supply
sum of supplies of all businesses willig to produce a particular product or service
law of supply
if the price of a product or service rises, quantity supplied increases
supply curve
shows relationship between price and quantity supplied, other things remaining the same
increase in supply
increase in businesses’ willingness to supply; rightward shift of supply curve
decrease in supply
decrease in business’s willingness to produce; leftward shift of supply curve
market
the interactions between buyers and sellers
property rights
legally enforceable guarantees of ownership of physical, financial, and intellectual property
shortage or excess demand
quantity demaded exceeds quantity supplied
surplus or excess supply
quantity supplied exceeds quantity demanded
market-clearing price
the price that equalizes quantity demanded and quantity supplied
equilibrium price
the price that equalizes quantity demanded and quantity supplied, balancing the forces of competition and cooperation, so that there is no tendency for change
comparitive statics
comparing two equilibrium outcomes to isolate the effect of changing one factor at a time
consumer surplus
the difference between the amount a consumer is willing and able to pay, and the price actually paid
producer surplus
the difference between the amount a producer is willing to accept, and the price actually received
total surplus
consumer surplus plus producer surplus
deadweight loss
the decrease intotal surplus compared to an economically efficient outcome
efficient market outcome
consumers buy only products and services where marginal benefit is greater than marginal cost; products and services produced at lowest cost with price just covering all opportunity costs of production
elasticity (or price elasticity of demand)
measures by how much quantity demanded responds to a change in price
inelastic demand
small response in quantity demanded when price rises
elastic demand
large response in quantity demanded when price rises
perfectly inelastic demand
price elasticity of demand equals zero; quantity demanded does not respond to a change in price
perfectly elastic demand
price elasticity of demand equals infinity; quantity demanded has an infinite response to any change in price
total revenue
al money a business receives from sales, equal to price per unit (P) multiplied by quantity sold (Q)
elasticity of supply
measures by how much quantity supplied responds to a change in price
inelastic supply
small response in quantity supplied when price rises
elastic supply
large response in quantity supplied when price rises
perfectly inelastic supply
price elasticity of supply equals zero; quantity supplied does not respond to a change in price
perfectly elastic supply
price elasticity of supply equals infinity; quantity supplied has infinity response to a change in price
cross elasticity of demand
measures the responsiveness of the demand for a product of service to a change in the price of a substitute or complement
income elasticity of demand
measures the respinsiveness of the demand for a product or service to a change in income
income inelstic demand
for normal goods that are necessities, the percentage change in quantity is less than the percentage change in income
income elastic demand
for normal goods that are luxuries, the percentage change in quantity is greater than the percentage change in income
tax incidence
the division of a tax between buyers and sellers
Elasticity of supply =
% change in quantity supplied/% change in price
First key
Additional benefits vs. Opportunity costs
Second key
Additional benefits and costs
Key 3:
Implicit costs and externalities
