unknown terms for exam #1 Flashcards
Economics
Social science is concerned with the way society chooses to employ scarce resources which have alternative uses to produce and distribute goods and services from present and future consumption
Marginal thinking/at the margin
The contribution of each individual unit to the toal product at the time that the unit is applied; every unit has its own marginal contribution
Consumer Sovereignty
We decide what we want and what happens to the economy through out choices
what is a market?
A set of arrangements by which buyers and sellers of a good or service are in contact to trade that good or service
Invisible Hand Theory
Adam smith; when a person acts in their own self-interest, it will lead to the best outcome for everyone. Individuals guided by an invisible hand pushing the market to equilibrium
Behavioral Economics
Combines elements of economics and psychology to understand how and why people behave the way they do in the real world
What is driving peoples decisions?
- Limited income (and time) necessitates choosing among alternatives
- amount of satisfaction each good gives you
- One good can usually be substituted for another
- Consumers make decisions based on imperfect information
- The law of diminishing marginal returns applied in consumption
What will shift a demand curve?
Income
Tastes and preferences
Price of substitutes
Price of compliments
Uncertainty
population
Ceteris Paribus
Other things help the constant; other things being equal
What will shift a supply curve?
Change in resource (input) costs
Change in technology
“Supply Shocks”
Perfect competition
a market structure characterized by many buyers and sellers, freedom of entry and exit, and no one buyer or seller is large enough to affect price
Marginal utility
The change in total utility resulting from one additional unit of a commodity consumer
Elasticity
Change in the behavior of buyers and sellers in response to a change in price for a good or service
Determinants of relative elasticity
Presence (absence) of good substitutes
% of income spent on good
Time
PPF Shifters
Increase in resource availability
Technology
trade
Types of efficiencies
- Technological: highest quantity of outputs produced from the smallest number of inputs
- Economic: All resources are allocated ofr their best uses to creat the most utltuy for everyone
law of diminishing marginal returns
If the quantities of some factors of production are fixed then the marginal product () of any variable will eventually decline
law of demand
Quantity demanded of a good is inversely related to its price
Real income effect
Change in quantity demanded due to changes in consumer’s real income resulting from a change in the price of goods, ceteris paribus
law of supply
The quantity supplied of a good is directly related to its own price
Own price elasticity of demand
Percentage increase in quantity demanded that occurs as a result of a 1% reduction in price, ceteris paribus
Real income
how much can your money buy you in terms of goods/services
Why might the market fail?
- Lack of competition
- Externalities (External to the market, good or bad)
- Public goods
- Common property ( being Nonexclusive/Rival )
