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ECN 143:Notes:Day 3
ECN 143:Notes:Day 3
53
Business
Undergraduate 1
01/20/2016

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Term
What are the four types of scarce resources?
Definition
Land, Labor, Capital, Entrepreneur Ability
Term
Where there is scarcity there is incentive to do what?
Definition
Compete
Term
What is the factor payment to owners of land?
Definition
Rent
Term
What is the factor payment to owners of labor?
Definition
Wages/Salaries
Term
What is the factor payment to owners of Capital?
Definition
Interest
Term
What is the factor payment to owners of Entrepreneur Ability?
Definition
Normal Profit
Term
What are the two functions of Factor Payments?
Definition
Income Sources on one hand and costs of production to the other.
Term
All of us can offer what kind of resource?
Definition
Labor
Term
What is the nature of the scarcity problem?
Definition
There is an allocation problem, with limited resources, how does one put their resources to the best use possible.
Term
Why do we rely on specialization and exchange?
Definition
It is an efficient way to allocate resources.
Term
Why are economic agents prudent to do what they what they do best?
Definition
They practice rational self-interest.
Term
What is an economic agent?
Definition
Anyone who can make an economic choice or decision.
Term
What is Rational Self-Interest?
Definition
Optimization Behavior
Term
What is Optimization Behavior?
Definition
Behavior that is trying to make something to be the best it possibly can.
Term
What are two types of Optimization Behavior?
Definition
Profit Maximization
and
Utility Maximization
Term
Who specializes?
Definition
Individuals, Groups, and Regions/Nations.
Term
What is the law of comparative advantage?
Definition
The individual or country with the lowest opportunity cost of producing a particular good, should specialize in producing that good.
Term
What is Bill and Ted's Excellent Ironing Adventure?
Definition
An example of the law of comparative advantage.
Term
What is the problem of Bill and Ted's Excellent Ironing Adventure?
Definition
Bill and Ted must type a three page paper and iron their shirts before they can go to a party.
Term
In Bill and Ted's Excellent Ironing Adventure what are Bill's Skills?
Definition
It takes him ten minutes a page to type a paper, it takes him ten minutes to iron shirts.
Term
In Bill and Ted's Excellent Ironing Adventure what are Ted's Skills?
Definition
It takes him twenty minutes a page to type a paper, it takes him five minutes to iron shirts.
Term
In Bill and Ted's Excellent Ironing Adventure, how long do Bill and Ted have until they must go to the party?
Definition
One Hour
Term
In Bill and Ted's Excellent Ironing Adventure who is the fastest typist?
Definition
Bill
Term
In Bill and Ted's Excellent Ironing Adventure who is the fastest at ironing shirts?
Definition
Ted
Term
In Bill and Ted's Excellent Ironing Adventure, what is Bill's Comparative Advantage In?
Definition
Typing
Term
In Bill and Ted's Excellent Ironing Adventure, what is Ted's Comparative Advantage In?
Definition
Ironing Shirts
Term
In Bill and Ted's Excellent Ironing Adventure, specializing in the skills that they each have a comparative advantage in and exchanging products allows them to do what?
Definition
Reach their maximum efficiency
Term
Specialization and Exchange allow groups and individuals to do what?
Definition
Produce more output as all parties involved benefit.
Term
What is the fundamental economic problem?
Definition
Scarcity
Term
What is the main way entities allocate resources?
Definition
A Market
Term
What is Demand?
Definition
Schedule or function that shows the various amounts of a product that consumers are willing and able to purchase at various prices per unit of time.
Term
How can a consumer reveal demand?
Definition
They must be willing and able to purchase a product.
Term
What is the law of demand?
Definition
There exists an inverse relationship between "price" and "quantity demanded".
Term
When price goes up, quantity demanded goes where?
Definition
Down
Term
When price goes down, quantity demanded goes where?
Definition
Up
Term
When two variables are in an inverse relationship, when one variable moves in a direction, the other variable must move in what direction?
Definition
The opposite direction
Term
What is Utility in Economics?
Definition
Satisfaction
Term
What is Marginal Utility in Economics?
Definition
The amount of satisfaction received for each additional good consumed.
Term
For each good consumed, the marginal utility derived from the good eventually does what?
Definition
Decline
Term
To Inspire More Consumption due to the problem of diminishing marginal utility, then what must happen?
Definition
The price of a product must go down in order to increase quantity demanded of the product.
Term
What is Nominal Income?
Definition
Income measured in current dollars not adjusted to inflation that has nothing to do with buying power.
Term
(Nominal Income / Prices) Equals What?
Definition
Real Income
Term
What is Real Income?
Definition
The buying power of money income.
Term
The smaller the denominator the bigger the what?
Definition
Value of the fraction
Term
What happens to buying power when prices are lowered?
Definition
It increases
Term
What happens to buying power when prices are increased?
Definition
It decreases
Term
What happens when buying power is increased?
Definition
The Quantity Demanded Increases
Term
What are the three theoretical justifications of the Law of Demand?
Definition
1.)Diminishing Marginal Utility
---
2.)Income Effect
---
3.)Substitution Effect
Term
What is
(Nominal Income/Prices)=Real Income?
Definition
The Income Effect
Term
When two products can be substituted for one another and one of the products has a lower relative price to the other product what might happen?
Definition
The consumer may switch to the product that costs relatively lower than the product it can be substituted with and increase the quantity demanded of the product that costs relatively less than the product it can be substituted with.
Term
What is an increase in demand?
Definition
Consumers want more of a good at any price or regardless of the price.
Term
What is a decrease in demand?
Definition
Consumers want less of a good at any price or regardless of the price.
Term
What are the determinants of demand?
Definition
The variables held constant when a demand curve is drawn. They shift demand.
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