test #1 Flashcards
scarcity principle
trade-offs are widespread and important
cost-benefit principle
only take action If extra benefits from actions outweigh extra costs
rational person
one that works towards goals
opp. cost
totally loss
normative principle
how people should behave - value judgement
positive/descriptive principle
predicts how people will behave
incentive principle
more likely to do something if benefits increase than if costs increase
pitfalls
sunk costs, not looking at marginal costs/benefits, looking at proportions, ignoring implicit costs
Adam Smith
Father Econ
invisible hand theory
copy innovations for more clients
micro
Indiv. choice
macro
national economies
marginal decision making
additional change, next unit
utility
satisfaction, usefulness, pleasure
net benefit
total benefit - total costs
sunk cost
what you give up that cannot be changed by future actions
economic surplus
[benefit (willingness to pay) of an activity or good] - [what you give up]
bow shaped PPC
increasing opp. costs as economy produces more items
low hanging fruit principle
expanding production of any good, first employ those resources w/ lowest opp cost FAVORABLE OPPS FIRST
factors that shift economy’s production possibilities curve
new factories + equipment, diff funding, increased saving, population growth
Alfred Marshall
1st to understand relationship between costs and value
demand curve
downward sloping
substitution effect
increased price leads to switching to diff goods
income effect
increase price means decreased quantity demanded (reduction in purchasing power)
buyer’s reservation price
largest $ amount buyer would pay for good
marginal buyer
person who buys last unit of good sold
horizontal interpretation
demand curve, looking at price to find quantity
vertical interpretation
looking at quantity to find price
supply curve
upward slope
seller’s reservation price
selling additional unit of good
excess supply (surplus)
when supply exceeds demand, $ of good is < equil.
incentive principle
tendency to move toward equil.
price ceiling
max. available price, specified by law
change in quant. demanded is a response to..
change in $
change in demand
shift in entire demand curve
Change in supply
shift in entire curve
change in quant. supplied is a response to..
change in $
complements
combo of goods increase the price of each other vs alone
substitutes
red grapes vs green grapes
normal goods
goods eaten when income increases
inferior goods
goods eaten when income decrease
change in current price
decrease price current market demand
change in expected future price
decrease in demand
increase opp cost
left shift in supply curve
decrease in marginal cost
rightward shift
increase in demand means…
increase in $ and Q
decrease in demand
decrease in $ and Q
increase in supply
decrease in $ and Increase in Q
decrease in supply
increase in $ and decrease in Q
