Unit 1 (Ch. 1-5) Vocabulary 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
equity
the property of distributing economic prosperity fairly among the members of society
opportunity cost
whatever must be given up to obtain some item
rational people
people who systematically and purposefully do the best they can to achieve their objectives
marginal changes
small incremental adjustments to a plan of action
incentive
something that induces a person to act
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
property rights
the ability of an individual to own and exercise control over scarce resources
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
productivity
the quantity of goods and services produced from each hour of a worker’s time
inflation
an increase in the overall level of prices in the economy
business cycle
fluctuations in economic activity, such as employment and production
circular-flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
production possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
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
claims that attempt to describe the world as it is
normative statements
claims that attempt to prescribe how the world should be
absolute advantage
the ability to produce a good using fewer inputs than another producer
opportunity cost
whatever must be given up to obtain some item
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
imports
goods produced abroad and sold domestically
exports
goods produced domestically and sold aborad
market
a group of buyers and sellers of a particular good or service
competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
quantity demanded
the amount of a good that buyers are willing and able to purchase
law of demand
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
demand curve
a graph of the relationship between the price of a good and the quantity demanded
normal good
a good for which, other things equal, an increase in income leads to an increase in demand
inferior good
a good for which, other things equal, an increase in income leads to decrease in demand
substitutes
two goods for which an increase in the price of one leads to an increase in the demand for the other
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
quantity supplied
the amount of a good that sellers are willing and able to sell
law of supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
supply curve
a graph of the relationship between the price of a good and the quantity supplied
equilibrium
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
equilibrium price
the price that balances quantity supplied and quantity demanded
equilibrium quantity
the quantity supplied and the quantity demanded at the equilibrium price
surplus
a situation in which quantity supplied is greater than quantity demanded
shortage
a situation in which quantity demanded is greater than quantity supplied
law of supply and demand
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
total revenue
the amount paid by buyers and received by sellers of a good, computed as the price of the good times the quantity sold
income elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in consumers’ income, computed as the percentage change in quantity demanded divided by the percentage change in income
cross-price elasticity of demand
a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
price elasticity of supply
a measure of how much the quantity supplied of a good responds to a change in the price o that good, computed as the percentage change in quantity supplied divided by the percentage change in price
