Unit 1 Flashcards
Scarcity
Scarcity is the fact that there are a limited amount of different resources in this world.
Choices
Choices are the decisions we make that make us choose what we do with those limited resources.
Trade offs
The trade offs are the things we give up by choosing to use our resources in one way over another.
Price
Price is the amount of money or services that buyers, spend on a good.
Cost
Cost is what the seller/creator of the good pays to produce it.
Opportunity cost
Opportunity cost is everything that is given up by choosing one side of a decision.
Consumer goods
Consumer goods are any goods that can be readily consumed. An example of this is pizza you buy
Capital goods.
A goods that is used in the creation of consumer goods. Like the pizza oven
Normative economics
Normative economics is a depiction of how the world should work. It relies of facts, predictions, and hypothesis’
Positive economics
Positive economics relies on the cold hard truth and shows how the world actually does work. It relies on numbers and true, provable information
Productive efficiency
Being productively efficient just means that the economy is producing at a point along the PPC. This DOES NOT MEAN it is allocatively efficinet
Allocative efficiency
is when the economy not only produces on the PPC, but also makes the consumers as well off as possible.
Centrally planned economy
A centrally planned economy is an example of communism. In this, the government owns all of the resources and decides the methods of production, what will be produced, and who consumes these goods. provided no monetary gain for anyone and gives no incentive to make high quality goods. A free market economy is one that is run by the individual companies
Free market economy
A free market economy is one that is run by the individual companies. It included competition, profit, and the incentive to make better quality goods in a wide variety
Product market
The product market is the market that exists when you are selling completed goods to the consumers
Resource market
resource market is the market caused by purchasing the goods needed to produce your product.
Law of supply
Companies will supply more when there is a higher price
Law of demand
People demand more when it costs less
Law of diminishing marginal utility
The more you consume of one good, the less it is worth
normal good
A good which’s consumption increases as income increases
Ex fancy food
Inferior good.
Consumption decreases as income increases
Ex top ramen
Substitutes
Two interchangeable goods.
As the price of one rises, the demand for the other rises.
Ex pearls and diamonds
Compliments
Two goods used in conjunction
As the price of one decreases, the demand for the other will also decrease
Ex cereal and milk
Shifters of demand
- Number of buyers
- Income
- Expectations
- Price of related goods
- tastes
Shifters of supply
- Number of sellers.
- Technology
- resource prices
- Taxes and subsidies
- Expectations of producers
- Price of other goods the firm could produce
Expectation of a sale
Decrease inDemand
Workers go on strike
Supply decrease
Price of a substitute goes up
Demand increases
Workers get a wage increase
Decrease in supply
Increase in tastes or trends
Demand increase
Workers become more productive
Supply increase
Price of a compliment decreases
Demand increases
Government imposes tax on manufacturers
Supply down
A subsidy
Supply increase
Price of the item increases
No shift. Shift along the curve.
Another company who sells the same items enters the market
Increase in supply
Popularity increases and a new technology developed.
Demand increase, and supply increase
Price ceiling
The max price a good can be sold for. Only effective below equilibrium.
Creates a shortage
Price floor.
Minimum price a good can be sold for.
Only effective if above equilibrium
Creates a surplus.
How to find opportunity cost
Put the opposite value over and simplify
How to find specialization of trade
The person with the comparative advantage will produce that good.
Comparative advantage
The person with less opportunity cost for that good.
Absolute advantage
Who can produce total more of a good.
Is trade beneficial
If the trade gives both people more goods than they could get for producing it themselves then it is beneficial. Ex if John gets 4 donuts per one cupcake with trade and can produce 3 without, then trade is beneficial.
