ppt 0-1, 3, 7, 10: definitions of econ, supply & demand, equilibrium Flashcards
scarcity
the limited nature of society’s resources
economics
the study of how society manages its scarce resources
efficiency
the property of society getting the most it can from its scarce resources (the size of the economic pie)
equity
the property of distributing economic prosperity fairly among members of society (how the pie is divided)
marginal changes
small incremental adjustments to a plan of action i.e. deciding to watch another kdrama ep instead of reviewing econ
market economy
an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
“invisible hands”
the notion coined by Adam Smith that firms and households act in the market as if they’re guide by an ‘invisible hand’ that leads them to desirable market outcomes
Smith claims participants in the economy are motivated by self-interest and that the “invisible hand” of the marketplace guides this self-interest into promoting general economic well-being
what are two reasons why government would interfere in economy?
to promote efficiency and promote equity
market failure
a situation in which a market left on its own fails to allocate resources efficiently
externality
the impact of one person’s actions on the well-being of a bystander
market power
the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices (aka a monopoly) -> government intervention can mean introducing policies to help regulate this, improving efficiency
productivity
the amount of goods and services produced from each hour of a worker’s time
what causes inflation?
growth in the quantity of money
circular-flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
t or f: in markets for goods and services, firms sell and households buy
true
t or f: in markets for factors of production, households buy and firms sell
false
microeconomics
the study of how households and firms make decisions and how they interact in markets
macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
positive statements (positive science)
claims that attempt to describe the world as it is
normative statements (normative art)
claims that attempt to prescribe how the world should be
what are some examples of factors of production?
land: pay rent
labour: pay wages
capital: pay interest
catallatics
the “Science of Exchanges”, as coined by Richard Whately .
Claims that to satisfy needs and desires there are two ways: by force (usually gov’t) or through peaceful exchange in the market
population, when unchecked, increases in what sort of ratio? what does this mean?
geometric: population is growing exponentially, with the rate of growth proportional to the size of the population. In other words, as the population grows larger, the rate of growth also increases. This type of growth is often represented by a J-shaped curve on a graph.
subsistence increases in what sort of ratio? what does this mean?
arithmetical: the availability of resources or the means of subsistence are increasing at a constant rate over time. This type of growth is linear and is represented by a straight line on a graph
absolute scarcity can be related to what in-class examples
Thanos - Gamora?
positive time preference
to pay positive interest rates to get access to resources in the present; i.e. you should be paying goldman sachs to work there. choosing 1 mil today vs 2024 is positive time pref
What are the 3 fundamental economic problems?
What commodities shall be produced and in what quantity?
How shall goods be produced?
For whom shall goods be produced?
substitute good
a good that has many of the same characteristics as and can be used in place of another good
complement good
a good that is consumed or used together with another good
independent good
change in price of a good does not affect the demand of the good we are interested in
a SHIFT in the demand curve occurs from what? what direction does it occur in?
factors OTHER THAN price (i.e. market expectancy, consumer preferences)
Shifts are left and right
a MOVEMENT in the demand occurs from what? what direction does it occur in?
changes ONLY in price
movement is up and down -> affects QUANTITY demanded. not demand
what is a demand schedule?
a table that shows the relationship between the price of a good and the quantity demanded
ceteris paribus
all things equal aka all variables other than the ones being studied are assumed to be constant
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
equilibrium
a situation in which supply and demand have been brought into balance
equilibrium price
the price that balances supply and demand
equilibrium quantity
the quantity supplied and the quantity demanded when the price has adjusted to balance supply and demand
Why do the activities of buyers and sellers automatically push the market price towards the equilibrium price?
To avoid surpluses and shortages, which all eventually move towards equilibrium anyways to compensate
law of supply and demand
the price of any good adjusts to bring the supply and demand for that good into balance
What are the three steps in analyzing changes in equilibrium?
- Describe whether the event shifts the SUPPLY curve or DEMAND curve (or both)
- Decide which direction the curve shifts
- Use the supply-and-demand diagram to see how the shift changes the equilibrium
why do we call buyers and sellers price takers?
because buyers and sellers in perfectly competitive markets must accept the price the market determines
how do government taxes, subsidies, and regulations affect supply?
increase in taxes (payments by firms to the govt) or a decrease in subsidies (payment by govt to firms) will decrease supply
a decrease in taxes or an increase in the subsidies will increase supply
