Section 1-2: Basics And Concepts Flashcards
Economics
The study of scarcity and choice
Economy
System for coordinating a society’s productive and consumptive activities
Market economy
Where the decisions are made by individual
Producers and consumers about what, how, and for whom to produce
Command economy
Gov makes decisions
Communism*
Incentives
Rewards and punishments intended for motivation
Property rights
Establish ownership
Gives individuals the right to trade goods and services
Marginal analysis
The study of the costs and benefits of doing a little bit more of an activity.
One additional unit of a good*
Resource
Any thing that can be used to produce something
Land
Natural resources
Timber
Minerals
Petroleum
Labor
Effort of workers
Capital
Manufactured goods used to make other goods
Entrepreneurship
Efforts of entrepreneurs to innovate
Scarce
A scarce resource is not available in the quantity that society wishes to use it.
Opportunity cost
What you must give up in order to get something else.
Microeconomics
The study of how people make decisions
Macroeconomics
Overall ups and downs of the economy
Economic aggregates
Summarize data across different markets
Positive economics
The branch of economic analysis that describes the way the economy actually works.
Normative economics
Makes preparations about the way the economy should work.
The business cycle
The short run alternation between recessions and expansions.
A Depression
Very deep prolonged downturn
Recession
Period of economic downturn when output and employment are falling.
Expansion
Upturn
Employment and output is rising.
Employment
Number of people employed on the economy
Unemployment
,# of ppl not employed in the economy. Actively looking for work.
Output
Quantity produced
Aggregate output
Economy’s total production for a given that time period
Inflation
Rising overall price level
Deflation
Falling overall price level
Price stability
When aggregate price is changing slowly
Economic growth
Increase in economy’s production
Individual choice
Decisions made by individuals about what to do
Trade off
Give up something to have something else
Production possibilities curve
Illustrates trade offs facing an economy that only produces two goods
Shows the max quantity possible to produce of one good for each a possible q of the other.
Efficient
An economy is efficient if there is no way to make anyone better off without making someone else worse off.
Trade
People provide goods and services for others and receive some in return
Gains from trade
People can get more of what they want from trade than if they tried to be self-sufficient.
Specialization
Each person specializes in the task that her she is good at.
Comparative advantage
An individual has a CA in producing a good or service if the opportunity cost of producing the gold or service is lower for that person than for others.
Absolute advantage
A person has an Absolute Advantage if they can make more of a good or service given an amount of time and resources. Not the same as comparative.
Competitive market
A market which there are many buyers and sellers of the SAME good or service. None of whom can influence the price at which it is sold.
Demand schedule
Shows how much of a good or service consumers are able and willing to buy at different prices.
Quantity demanded
The actual amount of a good and service consumers are willing to by at a specific price.
Demand curve
Graphical representation of a demand schedule.
Shows relationship between quantity demanded and price.
The law of demand
Says that a higher price for a good or service, all other things being equal, leads ppl to demand a smaller amount of that good or service.
Change in demand
A shift in the demand curve
Which changes the quantity demanded at any given price.
Movement along the demand curve
A change in the quantity demanded of a good that is the result of a change in that goods price.
Substitutes
A rise in one good’s price leads to an increase in the demand for the other
Complements
A rise In the price of one good leads to a decrease in the demand for the other.
Normal good
When a rise in income increases the demand for a good it is a normal good.
Inferior good
When a rise in income decreases the demand for a good it is an inferior good.
Individual demand curve
Illustrates the relationship between quantity Demanded and price for an individual consumer.
Quantity supplied
The actual amount of a good or service producers Ayer willing to sell at a certain price.
Supply schedule
Shows how much of a good producers will supply at different prices.
Supply curve
Shows relationship btwn Q supplied and price
The law of supply
With other things being equal, the price and quantity supplied of a good are positively related.
A change in supply
A shift along the supply curve which I changes the quantity supplied at any given price.
A movement along the supply curve
Chance in the q supplied of a good that is a result in the goods price.
Input
Anything used to produce a good and service.
Individual supply curve
Shows relationship between quantity supplied and price for an individual producer.
Equilibrium
When no individual would be better off doing something different
Equilibrium price
The price at which the q demanded equals the q supplied.
Surplus
When q supplied ^ q demanded
Shortage
When q demanded ^ q supplied
Price ceiling
Max price sellers are allowed to charge
Price floor
Min price buyers are required to pay.
Demand price
Price at which consumers will demand the good.
The supply price
Price at which producers will supply that quantity
Wedge
A quantity control or quota that drives a wedge between the demand price and the supply price of a good. The price paid by buyers ends up I greater Than the price received by sellers.
Deadweight loss
The lost gains associated with transactions that do not occur due to market intervention
