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micro economics
test 1
54
Economics
Undergraduate 1
06/12/2012

Additional Economics Flashcards

 


 

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Term
What does “efficiency” mean to an economist?
Definition
getting the most out of scarce resources
Term
What does “equity” mean?
Definition
distributing prosperity fairly among society’s members
Term
What does it mean to say that there is a tradeoff between equity and efficiency?
Definition
To increase equity, could redistribute income from wealthy to poor. ex: Going to a party the night before your midterm leaves less time for studying.
Term
Definition of opportunity cost
Definition
any item is whatever must be given up to obtain it.
Term
What is a “marginal” change?
Definition
incremental adjustments to an existing plan.
Term
Why are free markets a good way of organizing economic transactions?
Definition
In a market economy, these decisions result from the interactions of many households and firms. the invisible hand
Term
What two things do market determined prices reflect?
Definition
-the market for goods and services
-the market for “factors of production”
Term
Why do economists make assumptions concerning the models they use?
Definition
easier to understand
Term
What is this “invisible hand” thing?
Definition
•The interaction of buyers and sellers determines prices.
•Each price reflects the good’s value to buyers and the cost of producing the good.
•to maximize society’s economic well-being, Prices guide self-interested households and firms to make decisions
Term
the players in the circular flow diagram are?
Definition
households and firms
Term
what the arrows mean in the circular flow diagram?
Definition
input and output are red arrows, green arrows are flow of dollars
Term
the two markets in the flow circular diagram are?
Definition
Markets for Goods & Services; Markets for Factors of Production
Term
definition of output in the circular flow diagram
Definition
Households output the labor
Firms output the goods and services
Term
definition of input in the circular flow diagram
Definition
households provide the inputs that firms use to produce goods and services.
Term
what is factors of production
Definition
In the markets for the factors of production, households are sellers, and firms are buyers.
Term
What is the definition of “capital?”
Definition
buildings & machines used in production
Term
the idea behind The production possibilities frontier
Definition
a graph that shows the various combinations of output
Term
How are trade-offs, opportunity cost, economic growth, technology change, increasing opportunity cost, efficiency, and inefficiency represented.
Definition
a complex economy to highlight some basic but powerful ideas
Term
What exactly is a demand (supply) curve?
Definition
The downward-sloping line relating price and quantity demanded is called the demand curve
Term
non-price determinants that move the supply curve
Definition
input prices, technology, number of sellers, expectations,
Term
non-price determinants that move the demand curve
Definition
number of buyers, income, prices of related goods, tastes, expectations,
Term
Change in supply
Definition
a shift in the S curve
•occurs when a non-price determinant of supply changes (like technology or costs)
Term
Change in the quantity supplied
Definition
a movement along a fixed S curve
•occurs when Pchanges
Term
Change in demand
Definition
a shift in the D curve
•occurs when a non-price determinant of demand changes (like income or # of buyers)
Term
Change in the quantity demanded
Definition
a movement along a fixed D curve
•occurs when P changes
Term
that steep demand and supply curves are ?
Definition
inelastic meaning the players don’t have much response to price changes.
Term
definition of a “competitive market”
Definition
many buyers and sellers, each of whom has little or no influence on the market price.
Term
definition of a normal good
Definition
positively related to income. Increase in income causes increase in quantity demanded at each price, shifts D curve to the right.
Term
definition of a inferior good
Definition
negatively related to income. An increase in income shifts D curves for inferior goods to the left.
Term
definition of complementary good
Definition
an increase in the price of one causes a fall in demand for the other. Example: computers and software. If price of computers rises, people buy fewer computers, and therefore less software. Software demand curve shifts left.
Term
definition of substitute good
Definition
an increase in the price of one causes an increase in demand for the other. Example: pizza and hamburgers. An increase in the price of pizza increases demand for hamburgers, shifting hamburger demand curve to the right.
Term
What is meant by “market” demand?
Definition
the sum of all the individual demands for a particular good or service.
Term
Law of demand
Definition
the claim that the quantity demanded of a good falls when the price of the good rises, other things equal
Term
Law of supply
Definition
the claim that the quantity supplied of a good rises when the price of the good rises, other things equal
Term
What is another name for equilibrium price?
Definition
market-clearing price
Term
What causes shortages ?
Definition
If the market price is below equilibrium, a shortage results, causing the price to rise
Term
What causes surpluses?
Definition
If the market price is above equilibrium, a surplus results, which causes the price to fall.
Term
what inelasticity and elasticity mean
Definition
When it’s less than one, demand is “inelastic.” When greater than one, demand is “elastic.”
Term
goods that are inelastic
Definition
one where the producers will be willing to sell about the same amount; supply of beachfront property, illegal drugs, seats on an airplane,
Term
goods that are elastic
Definition
the price you offer will have a strong impact on whether the seller will sell; supply of new cars, the price of a commodity (rice) $200 per ton
Term
what is Price elasticity of supply
Definition
measures how much Qs responds to a change in P.
Term
cross-price elasticity of demand
Definition

measures how much demand for one good responds to changes in the price of another good.

 

Cross-price elast.  =    % change in Qd for good 1

of demand                  % change in price of good 2

 

Term
The income elasticity of demand
Definition

measures how much quantity demanded responds to changes in buyers’ incomes.

Income elasticity      =       Percent change in Qd

of demand                       Percent change in income



Term
Why do we even use the mid-point method?
Definition
because the standard method gives different answers depending on where you start.
Term
Be able to show what happens to revenue when price changes
Definition
revenue = P xQ
Term
know what happens to revenue if suppliers that sell to customers with elastic demand raise their price
Definition
revenue will fall from lower quantity Q
Term
know what happens to revenue if suppliers with customers that have inelastic demand raise their price
Definition
When Dis inelastic, a price increase causes revenue to rise.
Term
What kind of customer base would you like to have?
Definition
inelastic, because revenue rises, make more money
Term
how Perfectly inelastic demand graph looks like
Definition
a straight vertical line
Term
know how perfectly elastic demand graph looks like
Definition
a straight horizontal line on the graph
Term
How does elasticity change over the length of a demand curve?
Definition
it changes by the percentage on the demand curve, (200%/40%; 67%/67%, as the price falls and quantity rises, the elasticity will fall
Term
Consumer surplus
Definition
the amount a buyer is willing to pay minus the amount the buyer actually pays
CS = (value to buyers) –(amount paid by buyers)
=buyers’ benefit from participating in the market
Term
Producer surplus (PS)
Definition
the amount a seller
is paid for a good
minus the seller’s cost.
PS = (amount received by sellers) –(cost to sellers)
= sellers’ benefit from participating in the market
Term
Total surplus =
Definition
CS + PS
= total gains from trade in a market
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