RESOURCE

anything that can be used to produce something else

Economy Sources:

land, labor, capital & human capital

SCARCE

not enough available to satisfy all the various ways a society needs/wants to use it

(natural resources & human resources)

OPPORTUNITY COST

what you must give up to get an item

(includes monetary cost)

TRADE OFF

comparison of cost & benefits 

INCENTIVES

when changes in the available opportunities offer rewards to those who change their behavior 

MARGINAL PERCISON

comparing cost & benefits of doing a little more of an activity 

INTERACTIONS

how the economy works

individual choice vs. individual intent

TRADE

people divide tasks among themselves and each provides a good or service that other people want in return 

GAINS FROM TRADE

get more of they want then they could being self-sufficient

SPECIALIZATION

a situation in which different people each engage in a different task

EQUILIBRIUM

a situation where an individual cannot make themselves better off by doing something different 

EFFICIENT 

when resources are used in a way that fully exploits all opportunities to make everyone better off

EQUALITY

fairness

MODEL

a simplified representation of reality that is used to better understand real-life situations 

"Other Things Equal Assumption"

all other relevant factors remain the same

PPF

(Production Possibility Frontier) 

to understand trade-offs by considering a simplified economy that produces on 2 goods

FACTORS OF PRODUCITON

the resources used to produce goods & services 

TECHNOLOGY 

the technical means of production of goods & services

COMPARATIVE ADVANTAGE

can produce more output w/ the same amount of input as someone else

BARTER

an economic transaction in which an individual directly trades a good or service they have for a goo/service they want 

INCOME DISTRIBUTION

how total income in economies is allocated 

POSITIVE ECONOMIES

analysis tries to answer why world works

NEGATIVE ECONOMICS

how world SHOULD work

FORECAST

prediction about next years revenue

COMPETITIVE MARKET

many buyers/sellers of the same good/service

SUPPLY & DEMAND MODEL 

due to competition 

• demand curve
• supply curve
• factors that cause shift
• equilibrium (price & quality)
• changes in supply & demand

DEMAND SCHEDULE

table showing how much of a good or service consumers will want to buy at different prices

QUANTITY DEMMANDED

amount consumers are willing to buy at a price

DEMAND CURVE

represents the amount consumers are willing to buy at a variety of prices

LAW OF DEMAND

price goes up = demand goes down

SHIFT OF DEMAND CURVE

change in quantity demanded

(moves the curve)

INVOLVEMENT ALONG DEMAND CURVE

change in quantity demand due to the price

SUBSTITUTES 

price rises = drop in demand but increases demand for substitute 

COMPLIMENTS

demand rises = demand rise 

NORMAL GOODS

rise in demand when rice in income 

INFERIOR GOODS

income rises = drop in demand 

income drops = rise in demand 

QUANTITY SUPPLIED

quantity producers will produce & sell

SUPPLY SCHEDULE

quantity of goods at various prices

INPUT

any good /service used to produce any other goods/services

DEMAND CHANGE:

Change in Quantity

only prices change along existing curve

DEMAND CHANGE:

Change in Demand

shift of the curve up or down

DEMAND CHANGE:

TIPSE

TASTE INCREASE

demand increase 

DEMAND CHANGE:

TIPSE

Income Increases

demand increases 

DEMAND CHANGE: 

TIPSE

Population Increases

demand increases

DEMAND CHANGE:

TIPSE

Substitute/Compliment

Sub price increase = increase in demand

com price increases = drop in demand

DEMAND CHANGE:

TIPSE

Expectation Increases

rise in demand 

SUPPLY CHANGE:

TIN

Change in Quantity 

only price along the curve moves

SUPPLY CHANGE:

Change in Supply

shifts the curve up or down

SUPPLY CHANGE:

Technology Increases

supply increases

SUPPLY CHANGE:

TIN

Technology Increases

supply increases 

SUPPLY CHANGE:

TIN

Input Price Increases 

supply decreases

SUPPLY CHANGE:

TIN

Number of Sellers Increases

supply increases 

WILLINGNESS TO PAY

maximum price someone is willing to pay 

INDIVIDUAL CONSUMER SURPLUS

net gain that a buyer achieves from the purchase of a good

TOTAL CONSUMER SURPLUS 

sum of individual consumer surplus achieve by all the buyers of a good

CONSUMER SURPLUS

both individual & total consumer surplus

INDIVIDUAL PRODUCER SURPLUS

the net gain (the difference between the price he gets and his cost) the minimum price at which he would have been willing to sell 

COST

the lowest price at which a potential seller is willing to sell

(monetary vs. opportunity) 

TOTAL PRODUCER SURPLUS

sum of individual 

PRODUCER SURPLUS

individual or total

TOTAL SURPLUS

sum of consumer & producer surplus in market 

INCREASE SURPLUS:

• reallocate consumption among consumers (who goods go to)
• reallocate sales among sellers (who sells the goods) 
• change quantity traded (continue to trade) 

EFFICIENT MARKET

1. allocates consumption of the good to the potential buyers who most value it (highest willingness to pay)
2. allocates sales to the potential sellers who most value that right to sell the good (lowest cost)
3. ensures that every consumer who makes a purchase values the good more than every seller who makes sale (mutually beneficial) 
4. ensure that every potential buyer who doesn't make a purchase values the good less than every potential seller who doesn't make a sale (so no mutually beneficially transactions are missed)

PROPERTY RIGHTS

a system in which valuable items in the economy have specific owners who can dispose of them as they choose

ECONOMIC SIGNAL

any piece of information that helps people make better economic decisions 

INEFFICIENT

when markets can't achieve efficiency, government intervention can improve society's welfare

MARKET FAILURE

when market is inefficient 

PRICE CONTROLS

when a government intervenes to regulate prices

Price Ceiling: prices can not exceed a fixed amount

Price Floor: prices must be more than a fixed amount

DEAD WEIGHT LOSS

the lost surplus associated with transactions that no longer occur due to market intervention 

INEFFICIENT ALLOCATION OF RESOURCES

due to connections (aka: some consumers have an unfair advantage)

WASTED RESOURCES

people expend money, effort & time to cope with the shortages caused by price ceiling 

INEFFICIENTLY LOW QUALITY

sellers offer low quality goods at low price even though buyers would rather have higher quality and pay a higher price for it 

BLACK MARKETS

price ceilings give incentive to do illegal activity 

MINIMUM WAGE

floor on the price of labor

INEFFICIENT HIGH QUALITY

end up being low quality with low price

DEMAND PRICE

the price at which consumers want to buy a certain quantity

SUPPLY PRICE

the price at which suppliers will supply a given quantity

WEDGE

occurs when the supply of a good is legally restricted

• called quota rent: restrictions