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Micro Test 1
Ch 1-6
87
Economics
Undergraduate 1
09/28/2009

Additional Economics Flashcards

 


 

Cards

Term
Scarcity
Definition
society has limited resources and, therefore, cannot produce all goods and services people wish to have
Term
economics
Definition
study of how society manages its scarce resources
Term
Principles of Economics
Definition

1) people face trade-offs

2) the cost of something is what you give up to get it

3) rational people think at the margin

4) people respond to incentives

5) trade can make everyone better off

6) markets are usually a good way to organize economic activity

7) governments can sometimes improve market outcomes

Term
efficiency
Definition
society getting maximum benefits from its scarce resources
Term
equality
Definition
benefits distributed uniformly among society's members
Term
opportunity cost
Definition
what you give up to get an item
Term
marginal changes
Definition
small incremental adjustments to an existing plan of action
Term
market economy
Definition
decisions of millions of firms and households when prices and self-interest guide their decisions
Term
government's role in economy
Definition
promote efficiency or promote equality
Term
market failure
Definition
a situation in which the market on its own fails to produce an efficient allocation of resources
Term
externality
Definition
the impact of one person's actions on the well-being of a bystander
Term
market power
Definition
the ability of a single person (or small group) to unduly influence market prices (monopoly-like)
Term
circular flow diagram
Definition
a visual model of the economy that shows how dollars flow through markets among households and firms
Term
Factors of production
Definition
labor, land, capital, entrepreneurship
Term
markets for goods and services
Definition
households are the buyers and firms are the sellers
Term
markets for the factors of production
Definition
households and the sellers and firms are the buyers
Term
production possibilities frontier
Definition
graph that shows the various combinations of output that the economy can possibly produce given the factors of production and the available production technology that firms use to turn these factors into output
Term
efficient outcome
Definition

economy is getting all that it can from scarce resources available

 

opposite = inefficient outcome

Term
microeconomics
Definition
the study of how households and firms make decisions and how they interact in specific markets
Term
macroeconomics
Definition
the study of economy-wide phenomena
Term
positive statements
Definition
make a claim about how the world is; descriptive
Term
normative statements
Definition
make a claim about how the world ought to be; prescriptive
Term
economic report of the president
Definition
discusses recent developments in the economy and presents the council's analysis of current policy issues
Term
wealth
Definition
all material things that possess economic value at one point in tim
Term

3 categories of firms

Definition

1) single proprietor

2) partnership

3) corporation (people own stock)

Term
absolute advantage
Definition
when the producer requires a smaller amount of inputs to produce a good
Term
comparative advantage
Definition
the ability to produce a good at a lower opportunity cost than another producer
Term
opportunity cost
Definition
what we give up to get an item
Term
gaining from trade
Definition

-allows people to specialize

- for both parties to gain, the price at which they trade must lie between the 2 opportunity costs

Term
perfectly competitive market
Definition

1) large number of sellers each acting independently

2) producing homogeneous product

3) no one firm has significant control over price/cost

4) freedom of entry and exit

5) full utilization of resources

Term
the law of increasing costs
Definition
as you produce more of a product the cost to produce it goes up
Term
market
Definition
group of buyers and sellers of a particular good or serivce
Term
competitive market
Definition
market in which there are so many buyers and sellers that each has a negligible impact on the market price
Term
quantity demanded
Definition
the amount of a good that buyers are willing and able to purchase
Term
law of demand
Definition
other things equal, when the price of a good rises, the quantity demanded falls and when the price of a good falls, the quantity demanded rises
Term
demand schedule
Definition
table that shows the relationship between the price of a good and the quantity demanded, holding all other factors constant
Term
demand curve
Definition
downward-sloping line/curve relating price and quantity demanded
Term
market demand
Definition
the sum of all the individual demands for a particular good or service
Term
increase in demand
Definition
any change that increases the quantity demanded at every price shifts the demand curve to the right
Term
decrease in demand
Definition
any change that decreases the quantity demanded at every price shifts the demand curve to the left
Term
normal goods
Definition
demand falls when income falls
Term
inferior goods
Definition
demand rises when income falls
Term
substitutes
Definition
goods which when the fall in price of one good reduces the demand for the other
Term
complements
Definition
goods which when the fall in price of one good raises the demand for the other
Term
quantity supplied
Definition
the amount that sellers are willing and able to sell
Term
law of supply
Definition
other things equal, when the price of a good rises, the quantity suppled of the good also rises and when the price of a good falls, the quantity supplied of the good also falls
Term
supply schedule
Definition
table that shows the relationship between the price of a good and the quantity supplied, holding constant all other factors
Term
supply curve
Definition
curve relating price and quantity supplied
Term
increase in supply
Definition
any change that raises quantity supplied at every price shifts the supply curve to the right
Term
decrease in supply
Definition
any change that reduces the quantity supplied at every prices shifts the supply curve to the left
Term
equilibrium
Definition
one point at which the supply and demand curves intersect
Term
equilibrium price
Definition
price at equilibrium
Term
equilibrium quantity
Definition
quantity at equilibrium (quantity demanded = quantity supplied)
Term
surplus
Definition
excess supply; suppliers are unable to sell all they want to at the going price
Term
shortage
Definition
excess demand; demanders are unable to buy all they want at the going price
Term
law of supply and demand
Definition
the price of any good adjusts to bring the quantity supplied and the quantity demanded into equilibrium
Term
prices
Definition
signals that guide allocation of resources
Term
markets consist of...
Definition

1) buyers (demanders)

2) sellers (suppliers)

3) prices

4) output

5) homogeneous product

6) one point in time

Term
market economy
Definition

- private property

- households acting in own interests

- firms trying to maximize profits

- no individual or entity has taken control of price or output

Term
Determinants of Demand
Definition

1) taste/preference

2) income

3) price of related goods (supplements & complements)

4) price expectations

5) number of buyers

Term
Determinants of Supply
Definition

1) price of inputs

2) price expectations

3) technology (doing more with less)

4) number of sellers

5) price of related goods (supplements & complements)

Term
elasticity
Definition
measures how much consumers respond to changes in variables
Term
price elasticity of demand
Definition

-  measures how much the quantity demanded responds to a change in price

 

-  %ΔQd / %ΔP

Term
elastic demand
Definition
if quantity demanded responds substantially changes in price
Term
inelastic demand
Definition
if the quantity demanded responds only slightly to changes in price
Term
midpoint method
Definition
(Q2-Q1)/[(Q2+Q1)/2]  /  (P2-P1)/[(P2+P1)/2]
Term
perfectly inelastic
Definition
demand curve is vertical; quantity demanded stays the same when price changes
Term
perfectly elastic
Definition
demand curve becomes horizontal; small changes in price lead to huge changes in quantity demanded
Term
total revenue
Definition

amount paid by buyers and received by sellers of a good

 

TR = Q x P

Term
Total Revenue Test
Definition

- inelastic demand: price and total revenue move in same direction

 

-elastic demand: price and total revenue move in opposite directions

 

-unit elastic: total revenue remains constant when price changes

Term
income elasticity of demand
Definition

-  measures how quantity demanded changes as consumer income changes

 

- %ΔQd / %ΔP

 

-  normal goods positive

-  inferior goods negative

Term
cross-price elasticity of demand
Definition

-  measures how the quantity demanded of one good responds to a change in the price of another good

 

-  positive for substitutes

-  negative for complements

Term
price elasticity of supply
Definition
measures how much the quantity supplied responds to the changes in price
Term
elastic supply
Definition
if quantity supplied responds substantially to changes in price
Term
inelastic supply
Definition
if the quantity supplied responds only slightly to changes in price
Term
determinants of elasticity of demand
Definition

1) necessity (inelastic) vs. luxury (elastic)

2) availability of close substitutes (more substitutes = more elastic)

3) time to adjust (more time = more elastic)

4) how narrowly defined the market is (more narrow = more elastic)

5) percentage of your budge commodity takes up (larger percentage = more elastic)

Term
Determinants of Elasticity of Supply
Definition

- resources- short run

- time- long run

Term
price ceiling
Definition
legislated maximum price
Term
price floor
Definition
legislated minimum price
Term
not binding
Definition
price ceiling above equilibrium or price floor below equilibrium
Term
binding constraint
Definition

price floor above equilibrium-- surplus

or

price ceiling below equilibrium-- shortage

Term
tax incidence
Definition
how the burden of a tax is distributed among the various people who make up the economy
Term
indifference curve analysis assumptions
Definition

1) ordinal utility

2) non-satiation (better off with more than less)

3) consumers are rational (try to max satisfaction)

4) diminishing marginal rate of substitution

Term
indifference curve
Definition
locus set of points where a consumer would be indifferent to certain commodities
Term
relative price
Definition
rate at which the market is willing to trade one good for another
Term
marginal rate of substitution
Definition
rate at which the consumer is willing to trade one good for the other
Term
optimization
Definition
relative price = marginal rate of substitution
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