Test 1 Flashcards
Circular flow diagram
views the economy as consisting of households and firms interacting in a goods and services market and a labor market
Command economy
economic decisions are passed down from government authority and where resources are owned by the government
Economics
the study of how humans make choices under conditions of scarcity
Economies of scale
when the average cost of producing each individual unit declines as total output increases
Fiscal policies
economic policies that involve government spending and taxes
Globalization
the trend in which buying and selling in markets have increasingly crossed national borders
Goods and services market
firms are sellers of what they produce and households are buyers
Exports
goods and services made domestically and sold abroad
Gross domestic product (GDP)
measure of the size of total production in an economy
Imports
products made abroad and then sold domestically
Labor market
households sell their labor as workers to business firms or other employers
Macroeconomics
focuses on broad issues such as growth, unemployment, inflation, and trade balance
Market
interaction between potential buyers and sellers; combo of supply & demand
Market economy
economic decisions are decentralized, resources are owned by private individuals, and businesses supply goods & services based on demand
Microeconomics
focuses on actions of specific agents within the economy like households, workers, and business firms
Model
theory
Private enterprise
system where the means of production are owned & operated by private individuals or groups of private individuals
Scarcity
human wants for goods and services exceed the available supply
Specialization
when workers/firms focus on particular tasks for which they are well-suited within the overall production process
Theory
representation of an object or situation that is simplified while including enough of the key features to help us understand the object/situation
Traditional economy
typically an agricultural economy where things are done the same as they have always been done
Underground economy
market where buyers and sellers make transactions in violation of one+ governmental regulations
Allocative efficiency
when the mix of goods being produced represents the mix that society most desires
Budget constraint
all possible consumption combinations of goods that someone can afford, given the price of goods, when all income is spent; the boundary of the opportunity set
Comparative advantage
when a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production
Invisible hand
Idea that self interested behavior by individuals can lead to positive social outcomes
Law of diminishing marginal utility
as we consume more of a good/service, the utility we get from additional units of the good/service tend to become smaller than what we received from earlier units
Marginal analysis
examination of decisions on the margin, meaning a little more or less from the status quo
Normative statement
describes how the world should be, opinion
Opportunity cost
measures cost by what is given up in exchange
Opportunity set
all possible combos of consumption that someone can afford given the prices of goods and the individuals income
Positive statement
statement which describes the world as it is
Production possibilities frontier (PPF)
diagram showing the productively efficient combinations of two products that an economy can produce given the resources it has
Productive efficiency
when it’s impossible to produce more of one product without decreasing the quantity produced of another product
Utility
satisfaction, usefulness, or value one obtains from consuming goods/services
Ceteris paribus
holding everything else constant
Complements
goods that are often used together so that consumption of one good tends to enhance consumption of the other
Demand curve
graphic representation of the relationship between price and quantity demanded of a product. quantity on horizontal axis, price on vertical axis
Demand schedule
table that shows a range of prices for a certain product and the quantity demanded at each price
Equilibrium
the situation where quantity demanded is equal to the quantity supplied; no economic pressure from surpluses or shortages that would cause price/quantity change
Equilibrium price
price where quantity demanded = quantity supplied
Equilibrium quantity
quantity at which quantity demanded = quantity supplied, for a certain price level
Excess demand
a shortage; at the existing price, the quantity demanded exceeds the quantity supplied
Excess supply
a surplus; at the existing price, the quantity supplied exceeds the quantity demanded
Factors of production
Land, labor, capital, entrepreneurial ability, and tech
Inferior goods
good in which the quantity demanded falls as income rises & vice versa
Inputs
Land, labor, capital, entrepreneurial ability, and tech
Law of demand
common relationship that a higher price leads to a lower quantity demanded, ceteris parabis
Law of supply
common relationship that a higher price leads to a greater quantity supplies, ceteris parabis
Normal good
Quantity demanded rises as income rises & quantity demanded falls as income falls
Price ceiling
legal max price
Price control
government laws to regulate prices
Price floor
legal minimum price
Quantity demanded
total number of units of a product consumers are willing to purchase at a given price
Shift in demand
when a change in some economic factor (other than price) causes a different quantity to be demanded at every price
Shift in supply
when a change in some economic factor (other than price) causes a different quantity to be supplied at every price
Shortage
at the existing price, the quantity demanded exceeds the quantity supplied
Substitute
a good that can replace another to some extent, so that greater consumption of one can mean less of the other
Supply
the relationship between price and the quantity supplied of a product
Supply curve
a line that shows the relationship between price and quantity supplied on a graph, quantity of the horizontal axis and price on the vertical axis
Supply schedule
table showing range of prices for a product and the quantity supplied at each price
Surplus
at the existing price, quantity supplied exceeds the quantity demanded
Intertemporal decision making
concept of basing decisions on expected future conditions rather than existing conditions
Minimum wage
a price floor that makes it illegal for an employer to pay employees less than a certain hourly rate
What kind of resource is an arrowhead?
Capital (also tech)
Why would a company be producing inside the PPF curve?
unemployment, inefficiency, & discrimination
Margin/Marginal
1 increment more
Why is the PPF curved?
the law of increasing opportunity cost / diminishing marginal returns
What are some pitfalls to sound reasoning?
bias, loaded terminology, fallacy of composition (stereotyping, general assumptions), post hoc fallacy (false cause)
What are some determinants of demand?
tastes & preferences, income, price/availability of complement/substitute goods, and # of buyers
